In the Matter of: )

)

CERTAIN DUCTILE IRON ) Investigation No.:

WATERWORKS FITTINGS ) TA-421-4

FROM CHINA )

REVISED AND CORRECTED COPY

OPEN SESSION

Pages:	1 through 346 (with excerpts)

Place:	Washington, D.C.

Date:	November 6, 2003

THE UNITED STATES INTERNATIONAL TRADE COMMISSION

In the Matter of: )

)

CERTAIN DUCTILE IRON ) Investigation No.:

WATERWORKS FITTINGS ) TA-421-4

FROM CHINA )

Thursday,

November 6, 2003

U.S. International Trade Commission

500 E Street, SW

Washington, D.C.

The hearing commenced, pursuant to notice, at

9:32 a.m., before the Commissioners of the United States

International Trade Commission, the Honorable DEANNA

TANNER OKUN, Chairman, presiding.

APPEARANCES:

On behalf of the International Trade Commission:

Commissioners:

DEANNA TANNER OKUN, CHAIRMAN (presiding)

JENNIFER A. HILLMAN, VICE CHAIRMAN

MARCIA E. MILLER, COMMISSIONER

STEPHEN KOPLAN, COMMISSIONER

CHARLOTTE R. LANE, COMMISSIONER

DANIEL R. PEARSON, COMMISSIONER

Staff:

MARILYN R. ABBOTT, SECRETARY TO THE COMMISSION

WILLIAM R. BISHOP, STAFF ASSISTANT

DEBORAH A. DANIELS, LEGAL DOCUMENTS ASSISTANT

DIANE MAZUR, SUPERVISORY INVESTIGATOR

FRED RUGGLES, INVESTIGATOR

WILLIAM GEARHART, ATTORNEY

WILLIAM GREENE, INDUSTRY ANALYST

JOHN BENEDETTO, ECONOMIST

DAVID BOYLAND, ACCOUNTANT/AUDITOR

APPEARANCES (continued):

In Support of Relief:

SESSION 1: Open to the Public

On Behalf of McWane, Inc.; Clow Water Systems Co., Tyler Pipe Industries, and Union Foundry Co.:

DAVID GREEN, President, Ransom Industries, LP

DON WAUGAMAN, Vice President, Sales and

Administration, Tyler Pipe Industries

JOEL BLAIR, National Sales Manager, Utility

Products, Tyler Pipe Industries

JAMES R. MURRAY, Vice President, Business

Development, U.S. Pipe and Foundry Co.

JOHN E. FREEMAN, Vice President and Corporate

Counsel, U.S. Pipe and Foundry Co.

THOMAS TESKE, General Manager and Vice President

of Sales and Marketing, East Jordan

Iron Works, Inc.

LEO GERARD, President, United Steel Workers

of America

MICHAEL T. KERWIN, Economic Consultant,

Georgetown Economic Services, LLC

BRAD HUDGENS, Economic Consultant,

Georgetown Economic Services, LLC

Of Counsel:

PAUL C. ROSENTHAL, Esquire

ROBIN H. GILBERT, Esquire

JOHN M. HERRMANN, Esquire

Collier Shannon Scott, PLLC

Washington, D.C.

In Opposition to Relief:

SESSION 2: Open to the Public

On Behalf of Chinese Producers:

JOHN REILLY, Director, International Trade

Economics, Nathan Associates, Inc.

In Opposition to Relief (continued):

Of Counsel:

HAMILTON LOEB, Esquire

SCOTT FLICKER, Esquire

ALEXANDER W. KOFF, Esquire

Paul, Hastings, Janofsky & Walker, LLP

Washington, D.C.

On Behalf of SIGMA Corp.:

VICTOR PAIS, President, SIGMA Corp.

SIDDHARTH BHATTACHARJI, Vice President,

SIGMA Corp.

LARRY RYBACKI, Vice President, Marketing,

SIGMA Corp.

MIKE GROENIGER, President, Groeniger,

Groeniger & Co.

ELLIOTT LINDQUIST, Independent Consultant

EDDIE MORRISON, President, CI Thornburg

Of Counsel:

ROBERT G. GOSSELINK, Esquire

KEIR WHITSON, Esquire

White & Case, LLP

Washington, D.C.

On Behalf of Pipeline Components, Inc.:

STEVE SAHA, Executive Vice President,

Pipeline Components, Inc.

Of Counsel:

LAWRENCE J. BOGARD, Esquire

Neville Peterson, LLP

Washington, D.C.

On Behalf of Star Pipe Products, Inc.:

DANIEL McCUTCHEON, Vice President, Sales,

Star Pipe Products, Inc.

PETER LISOWSKI, Accounts Manager,

Star Pipe Products, Inc.

DANIEL W. KLETT, Economic Consultant,

Capital Trade, Inc.

In Opposition to Relief (continued):

Of Counsel:

FRANCIS J. SAILER, Esquire

LaFave & Sailer, LLP

Washington, D.C.

I N D E X

PAGE

OPENING STATEMENT OF PAUL C. ROSENTHAL	10

(Collier Shannon Scott, PLLC) IN SUPPORT OF RELIEF

OPENING STATEMENT OF HAMILTON LOEB (Paul, Hastings,	14

Janofsky & Walker, LLP) IN OPPOSITION TO RELIEF

MICHAEL T. KERWIN, Economic Consultant,	19

Georgetown Economic Services, LLC

DAVID GREEN, President, Ransom Industries, LP	31

JAMES R. MURRAY, Vice President, Business	36

Development, U.S. Pipe and Foundry Co.

LEO GERARD, President, United Steel Workers	41

of America

DON WAUGAMAN, Vice President, Sales and	46

Administration, Tyler Pipe Industries

JOEL BLAIR, National Sales Manager, Utility	49

Products, Tyler Pipe Industries

THOMAS TESKE, General Manager and Vice President	52

of Sales and Marketing, East Jordan

Iron Works, Inc.

PAUL C. ROSENTHAL, Esquire, Collier Shannon Scott,	55

PLLC, Washington, D.C.

JOHN REILLY, Director, International Trade	169

Economics, Nathan Associates, Inc.

I N D E X

PAGE

HAMILTON LOEB, Esquire, Paul, Hastings,	167

Janofsky & Walker, LLP, Washington, D.C.

SCOTT FLICKER, Esquire, Paul, Hastings,	198

Janofsky & Walker, LLP, Washington, D.C.

TESTIMONY OF VICTOR PAIS, President, SIGMA Corp.	226

TESTIMONY OF SIDDHARTH BHATTACHARJI, Vice President,	210

SIGMA Corp.

TESTIMONY OF LARRY RYBACKI, Vice President, Marketing,	171

SIGMA Corp.

TESTIMONY OF MIKE GROENIGER, President, Groeniger,	188

Groeniger & Co.

TESTIMONY OF ELLIOTT LINDQUIST, Independent Consultant	191

TESTIMONY OF EDDIE MORRISON, President, CI Thornburg	185

TESTIMONY OF ROBERT G. GOSSELINK, Esquire	171

TESTIMONY OF STEVE SAHA, Executive Vice President,	194

Pipeline Components, Inc.

TESTIMONY OF LAWRENCE J. BOGARD, Esquire	262

Neville Peterson, LLP, Washington, D.C.

TESTIMONY OF DANIEL McCUTCHEON, Vice President, Sales,	178

Star Pipe Products, Inc.

I N D E X

PAGE

TESTIMONY OF PETER LISOWSKI, Accounts Manager,	181

Star Pipe Products, Inc.

REBUTTAL/CLOSING STATEMENT OF PAUL C. ROSENTHAL	333

(Collier Shannon Scott, PLLC) IN SUPPORT OF RELIEF

REBUTTAL/CLOSING STATEMENT OF HAMILTON LOEB	338

(Paul, Hastings, Janofsky & Walker, LLP) IN OPPOSITION TO RELIEF

P R O C E E D I N G S

(9:32 a.m.)

CHAIRMAN OKUN: Good morning. On behalf of the United States International Trade Commission, I welcome you to this hearing on Investigation No. TA-
421-4, Certain Ductile Iron Waterworks Fittings from China. The Commission instituted this investigation under Section 421(b) of the Trade Act of 1974 to determine whether certain ductile iron waterworks fittings from China are being imported into the United States in such increased quantities or under such conditions as to cause, or threaten to cause, market disruption to the domestic producers of like or directly competitive products.

Before we begin, I note that the Commission has granted a request by certain Respondents to hold a portion of this hearing in camera so that proprietary information may be discussed. The in-camera session will follow the public presentations by Petitioners and Respondents. Only those persons covered by the administrative protective order will be allowed to attend this portion of the hearing. The in-camera session will commence with a presentation by the Respondents. Petitioners will be permitted to present an in-camera rebuttal presentation. The hearing will then return to a public forum and conclude with rebuttal, if desired, and a closing statement by each party.

Schedules setting forth the presentation of this hearing and testimony of witnesses are available at the secretary's desk. I understand that all parties are aware of time allocations. Any questions regarding time allocations should be directed to the secretary.

As all written material will be entered fully into the record, it need not be read to us at this time. All witnesses must be sworn in by the secretary before presenting testimony.

Finally, if you will be submitting documents that contain information you wish treated as business confidential, your request should comply with Commission Rule 201.6.

Madam Secretary, are there any preliminary matters?

MS. ABBOTT: No, Madam Chairman.

CHAIRMAN OKUN: Let us proceed with the opening statements.

MS. ABBOTT: Opening remarks in support of relief will be made by Paul C. Rosenthal, Collier Shannon Scott.

CHAIRMAN OKUN: Good morning, Mr. Rosenthal.

MR. ROSENTHAL: Good morning, Madam Chairman, and members of the Commission.

We are here today to discuss the little-used provision of law known as Section 421 of the Tariff Act of 1974 that, to date, has not provided any relief to any domestic industry, through no fault of this Commission.

Trade law observers have questioned the utility of this provision of law, the China-specific safeguard that was negotiated as part of China's accession to the WTO. Simply stated, because of the administration's unwillingness to provide relief in two previous cases in which the Commission has recommended a remedy, people questioned whether the promise of safeguard relief is illusory, a challenge that is laid down with no real expectation that the test will or can be met. For some, it seems as if the promise of Section 201 relief is like the promise of help that the Wizard of Oz offered Dorothy, on the condition that she bring back the broomstick of the Wicked Witch of the West. Of course, if the Petitioners in this case thought that the standards for 201 relief were impossible to meet, we would not be here today. We believe the facts of this case justify relief to the domestic industry and its workers.

This morning, our witnesses will explain what the record to date demonstrates: (1) that imports of ductile iron waterworks fittings have increased rapidly, whether you look at imports in an absolute sense of compared to other measures, and no matter what the segment of the period of investigation you choose to scrutinize; (2) that the increased volumes of low-priced imports are causing market disruption with the resultant material injury to the domestic industry.

In fact, every measure that the Commission analyzes points to an affirmative determination. Domestic production has declined. There has been a significant idling of production facilities, including plant closures. The industry has not been able to operate at a reasonable level of profit.

Indeed, the financial picture is getting increasingly bleak. The volume and value of shipments has declined and continues to decline. Employment has declined, with layoffs of hundreds of workers this year alone. And while inventories normally are high in this industry, they have increased to truly unhealthy levels. In fact, the only reason the domestic industry's market share has not declined as fast as production is that it has been selling out of its vast inventories for the past year.

All of these injurious effects are caused, in large part, by imports from China, as indicated by the information of the record concerning underselling, lost sales, lost revenues, and price declines in the face of rising costs and a growing market. Naturally, the Respondents have alternative explanations for everything, and, naturally, when the data in the staff report don't support the Respondents' theories, they either ignore the data or create new numbers. We will go into that more later today.

At the outset, however, I do want to comment that a tactic that the Respondents have used in their prehearing briefs, which may or may not be repeated at the hearing today, that is, implying that because McWane, the Petitioner, has had well-publicized environmental and workplace safety problems, that it is somehow not entitled to Section 421 relief. We will address that in our testimony this morning.

This case is not about taking responsibility for past mistakes. McWane has and continues to do so. And, of course, the case is not about McWane's former managers. It is about the future of this industry and its workers. Other domestic producers have been hurt by the Chinese imports. Indeed, McWane is not the only domestic producer to support this case, and one of the representatives of the other producers, Mr. Murray of U.S. Pipe, is here this morning and will testify.

Ultimately, what this case comes down to is jobs into this industry, good-paying and safe jobs, by any measure, better than the jobs in Chinese foundries. That is why we are delighted to have Leo Gerard, the president of the United Steel Workers of America, here this morning as well.

In addition to witnesses from McWane, you will also hear from an independent distributor, Mr. Teske, who will tell you about the nature of the Chinese competition in the marketplace.

When the testimony is concluded today, you'll have a more complete understanding of the industry and the nature of import competition from China, and I trust you will conclude that the standards for relief under Section 421 have been met and justify the remedy sought by the Petitioner. Thank you.

CHAIRMAN OKUN: Thank you.

MS. ABBOTT: Opening remarks in opposition to relief will be made by Hamilton Loeb, Paul, Hastings, Janofsky & Walker.

CHAIRMAN OKUN: Good morning.

MR. LOEB: Good morning. Thank you, Madam Chairman. Good morning, members of the Commission.

The thing I remember most about the "Wizard of Oz" is the moment where Dorothy says to her little dog, "Toto, we're not in Kansas anymore." And Mr. Rosenthal's remark about the "Wizard of Oz" reminds me of that because here we're not in a dumping case, and we're not in a Section 201 case. We're in a very different environment, as Dorothy and Toto were. We are in a Section 421 case, a brand-new statute adopted for very specific purposes using very specific language.

If Petitioners' claim doesn't fit into this statute, and they have elected to pursue this statute rather than the other alternatives that are clearly available to them and, in fact, that they have previously used in front of this Commission, then that's their choice, not anything that was created by the Wizard of Oz.

We will make three points in our presentation. First, imports are not increasing rapidly, as the statute requires. You'll hear how the data adds up from John Reilly of Nathan, our economist. You'll hear from all of the significant importers. All of the significant importers are here and will testify this morning. And you will hear from a number of the major distributors in the industry, distributors who buy from McWane and U.S. Pipe and import sources, including nonsubject imports as well as Chinese imports, and you will hear from them about what's been happening in this industry, which bears both on the increasing-rapidly standard and on the market-disruption standard.

As you hear the Petitioners' presentation on the increasing-rapidly point, I would just ask you to remember two things. First, this case was filed as a guess. You'll remember from the critical circumstances briefing that Petitioners filed this case not really knowing what the import numbers were. No fault of theirs, but there had been no breakout in the customs categories until 2002, and everyone recognizes that the 2002 data were full of misclassification and unreliable.

So they took their guess, and it has turned out that imports have not increased as rapidly as they may have thought that they did and certainly not rapidly enough to make the case here, now that we have solid data from questionnaires.

You will also, I'm sure, hear from Mr. Rosenthal in his presentation about what I call the "start-date issue." Commissioners Koplan and Okun commented in the Brake Drums case that the start date and the analysis date has to focus on post-WTO accession imports. That certainly is correct. I'm sure you'll hear, as the staff heard in the conference, to the contrary, but, of course, I would remind you that when you hear that, we are talking about surge, we are talking about statutory language that talks about imports that are rapidly increasing, and we think the interpretation that Commissioners Okun and Koplan provided was correct.

Now, we'll also cover market disruption. We appreciate the Commission's indulgence in the granting of time for an in-camera presentation. We know that's not favored, and we don't desire to keep information out of the public domain to the maximum extent possible. In this case, because of the way the Petitioner arrays within the industry, it's almost impossible to say anything meaningful on market disruption without talking about APO data. We appreciate the opportunity to do that, and you will hear from Mr. Reilly when we get to the APO session.

And particularly, we hear about the internal issues, not the import issues or import effects that are related to the condition of the U.S. industry, and you'll hear how the pricing allegations, allegations that the Chinese are hurting the Petitioner by underselling are belied by both the product-pricing evidence that the Commission has collected and by the overall pricing evidence in the form of AUV information and so on.

We will ask the Commission to also think, as it listens to the Petitioners, to ask, if it's true that imports are rising as rapidly from nonsubject countries as they are from subject, or maybe even more rapidly, as Mr. Rosenthal acknowledged at the staff conference. It's a significant problem for Petitioners. Why are we here under 421, not Section 201, which is the permitted global safeguard exemption, and why doesn't that make more sense for Petitioners because even if they were to get relief here, all that would do would be to shift effects over to other sources like India and so on.

I appreciate the Commission's listening to our opening. We look forward to our presentation later this morning.

CHAIRMAN OKUN: Thank you.

Madam Secretary, please announce the first panel.

MS. ABBOTT: The first panel, in support of relief, should please come forward.

Madam Chairman, all witnesses have been sworn.

CHAIRMAN OKUN: Thank you.

(Pause.)

CHAIRMAN OKUN: Before we proceed with this panel, Commissioner Koplan would like to welcome some special guests here today.

COMMISSIONER KOPLAN: Thank you, Madam Chairman. I believe that there is a group of students that just came into the room from Brandeis University's International School of Business, and I would just welcome them to this hearing. Welcome.

Thank you for straightening me out, Mr. Laehy. I'll talk to you about that later.

CHAIRMAN OKUN: Shall we welcome the group that's with you, Mr. Laehy? They are visitors from Indonesia perhaps? All right. Well, then we welcome this group. We may see other groups throughout the day, but we very much appreciate you being here and hope you find it useful.

Maybe I should just check, Mr. Rosenthal, to make sure I have the right witnesses here before me for this panel.

MS. ABBOTT: Madam Chairman, with your permission, John E. Freeman will be added to the witness list. He is with the United States Pipe and Foundry Company. He is vice president and corporate counsel.

CHAIRMAN OKUN: Without objection. Madam Secretary, we'll note -- I hope this is not a sign of the day, but we have two Mr. Don Waugamans out there listed on the thing.

(Discussion off the record.)

COMMISSIONER KOPLAN: I'm glad it's not just me this morning.

CHAIRMAN OKUN: Maybe it was that "Wizard of Oz" analogy we're going to be living with the rest of the day.

All right, Mr. Rosenthal, you may proceed.

MR. ROSENTHAL: We'll let you know if we have the right witnesses at the end of the day. We're not going to spend a lot of time on introductions. Our first witness will be Michael Kerwin.

MR. KERWIN: You can see that the domestic industry has been reduced to cloning its most important employees here this morning.

Good morning. I'm Michael Kerwin of Georgetown Economic Services. This morning, I would like to address some of the broad economic and industry issues that are critical to the Commission's analysis in this case. By any yardstick, imports of ductile iron waterworks fittings from China are increasing rapidly. This is true whether one surveys the period of investigation as a whole or concentrates on the latter half of the period.

The rapid increase in Chinese imports has occurred both in absolute terms and in relative terms whether compared to apparent domestic consumption or production of DIWF. Despite Respondents' assertions to the contrary, the estimates of Chinese imports that were included in our petition were radically understated compared to the actual numbers reported by the importers.

In 2002, for example, Chinese imports were almost twice as large as those estimated in the petition. As shown in the public data of the staff report and summarized in Figure 1, Chinese imports increased every year from 2000 through interim 2003 and by 70 percent between 2000 and 2002.

I would like to have been able to show you these data back to 1998, but the figures for the years before 2000 have not been released publicly.

Further, despite claims put forward by Respondents at the staff conference that imports were fading away into insignificance in the current year, imports from China in interim 2003 have continued to increase. Despite assurances that Chinese import entries would decline in advance of the slower winter season, monthly imports of DIWF from China have been increasing through the year. While imports averaged 1,700 tons per month in the first quarter of 2003, in July and August that average reached 2,800 tons, a 71 percent increase.

Given these ongoing increases, Figure 1 conservatively estimates full-year 2003 imports by doubling the volumes reported for the first half of the year.

The market share of Chinese ductile iron waterworks fittings shipments in the U.S. market likewise increased every year from 2000 forward, as shown in Figure 2. From a level of 11.4 percent in 2000, Chinese import market share rose to 16 percent in 2002, 17.6 percent in 2002, and a peak of 18 percent in the first half of 2003. While I cannot disclose the precise figures, I can say that over this same period the domestic industry showed consistent losses in its market share.

Chinese market share gains occurred concurrent with significant declines in unit values. Between 2000 and 2002, average unit values of shipments of Chinese imports fell by 13 percent, and they were six percent lower in the first half of 2003 than in the comparable period of 2002.

Simply put, in the second half of the Commission's period of investigation, the only period for which public data are available, imports from China quickly and significantly increased their share of the U.S. market as their unit values dropped. Over the same period, the domestic industry lost substantial market share.

Please bear in mind these simple but critical facts as you consider the arguments put forward by the Respondents that imports from China have had no impact on the domestic industry. In their briefs, the Respondents have conveniently circumvented the facts by arguing that the Commission essentially cannot examine any of the import data previous to 2001 in making its determination, citing to previous determinations under Section 421.

Respondents' logic stipulates that the Commission cannot even use 2000 as a base year in assessing the significance of import growth in the years 2001 and 2002. Rather, Respondents interpret the law and the Commission's precedent as allowing an assessment of growth in the current case only between 2001 and 2002 and into interim 2003. However, in both the Garment Hangers and Brake Drums and Rotors cases, the Commission made clear that it had examined each of the years of the entire period of investigation in coming to its affirmative findings of rapidly increasing imports. In the case of Pedestal Actuators, such an analysis was simply unnecessary because there were no imports from China in the 1997 through 2000 period.

Even in the Brake Drums and Rotors case, in which Chairman Okun and Commissioner Koplan expressed their views as to a need to focus on the more recent years of the POI, assessment of such growth examined import volumes in 2001 and 2002 in relation to 2000 as a base year. Thus, Respondents' arguments in the current case that the Commission should only examine a single year's worth of volume growth, from 2001 to 2002, are not only misplaced in relation to a logical assessment of import growth; they are inconsistent with the interpretation of Chairman Okun and Commissioner Koplan in the Brake Drums and Rotors determination.

In point of fact, the absolute growth in imports of ductile iron waterworks fittings from China in the two-year period between 2000 and 2002 was 70 percent, more than twice the figure over the same period in the Commission's finding of rapidly increasing imports in Brake Drums and Rotors.

Imports of DIWF from China also continue to increase in absolute terms in interim 2003 and grew even more quickly in relation to domestic consumption and production. Thus, imports of DIWF from China have grown consistently since 2000 and at a rate in excess of that shown for brake drums and rotors. If the statutory standard for a rapid increase was met in that case, it certainly is met in the case before you currently.

In assessing the impact of these rapidly increasing imports on the domestic industry, the Commission should be aware that there are no meaningful alternate causes of material injury. Aggregate U.S. demand for ductile iron waterworks fittings, for example, was healthy during the period of investigation. In fact, consumption increased in every year of the POI, expanding by four percent between 2000 and 2002 and an additional five percent in interim 2003.

Nor do imports of DIWF from other source countries offer a more compelling explanation as to the material injury suffered by the domestic industry. As shown in Figure 3, the official import statistics through the first eight months of 2003, the only year for which meaningful public data are available, indicate that imports of DIWF from China exceeded those from all other sources combined in every month of the year.

Indeed, for this period as a whole, China accounted for two-thirds of all U.S. imports of ductile iron waterworks fittings. Imports from China in this period were four times greater than those from the next-largest source country and reflected unit values 29 percent lower than those from other countries. Imports from nonsubject sources have affected the domestic industry, but China has been the biggest and most aggressive player in the U.S. market.

Despite the evidence that I have just recapped, the Respondents in this case continue to cling to their contention that Chinese imports have had no effect on the domestic industry. In support of this contention, they have thrown around claims of highly attenuated competition between domestic and Chinese DIWF and Buy America provisions that convey "a great marketing advantage, if not a monopoly" to the domestic industry.

To hear the Chinese Respondents tell it, they have been lucky to gain a toehold in the U.S. market for DIWF, and the pervasiveness of Buy America requirements effectively protects the domestic industry from pricing competition. This, of course, begs the question: If the domestic industry is truly protected from competition, why would it choose to lower prices in a period of growing domestic demand and increasing costs?

If Buy America requirements are so pervasive and important within the U.S. market, shouldn't the domestic industry be able to pass on its increased costs to its customers? How could such a protected industry be losing so much money, and how could Chinese import volumes have increased by 70 percent in two years if they were barred from a significant part of the U.S. market? If Chinese imports have not affected the domestic industry, why has U.S. production of DIWF fallen dramatically since 1999, as shown in this indexed representation?

Clearly, the domestic industry has been exposed to intense competition from low-priced Chinese imports, and the result has been the severe material injury summarized in the staff report. As shown in this comparison of indexed figures, as Chinese imports have grown, the result has been declining domestic production of ductile iron waterworks fittings, despite increasing consumption of the product in the U.S. market.

The staff report also shows that extreme price competition is taking place in the U.S. market, with underselling by Chinese imports occurring in 107 out of 110 possible price comparisons by margins ranging from 14 to 34 percent. It is precisely such underselling that has led to declines in industry prices on the products tracked by the Commission of 7 to 21 percent from 2001 to 2003.

As you will no doubt hear this afternoon, Respondents hold that this underselling and the market share gains of Chinese imports during the period of investigation have nothing to do with the dreadful and worsening financial performance of the domestic industry.

According to Respondents, U.S. Pipe and ACIPCO are performing very well, and McWane is dragging down the industry due to its capital investments in worker safety and environmental protection. As you will hear from Mr. Murray of U.S. Pipe, he strongly disagrees with Respondents' assertions that his company is performing well. I would also direct you to the questionnaire response of ACIPCO in relation to the Respondents' arguments.

As to the claims regarding McWane, the expenses cited by the Respondents do not begin to explain the declines in the company's profitability during the period. The largest capital expenditures made by McWane during the POI were not related to worker safety or environmental protection but to the installation of a state-of-the-art, automated molding line and related system at Union Foundry's Anniston, Alabama, facility. This production line, which was designed to dramatically improve Union's productivity, has been idle for much of this year due to the injurious effects of Chinese imports on production needs.

Nor do Respondents' claims as to the impact of safety and environmental investments on McWane's operating profits pass the Accounting 101 laugh test. When a capital investment is made in a given fiscal year, it is not taken as an operating expense in that year. Rather, the expense is amortized over the life of the asset via annual depreciation expenses. In the case of capital investments made by McWane, those assets were depreciated over periods ranging from seven to 20 years. So if a $5 million investment is made in an asset with a useful life of 10 years, just $500,000 in depreciation will be claimed as an expense in a given fiscal year, assuming straight-line depreciation.

Review of McWane's DIWF income statement shows that its depreciation expenses did not change significantly from year to year during the POI. More importantly, during the period from 2000 to 2002, when industry profitability fell to large losses, McWane's depreciation expenses were actually declining. The consolidated income statement shows quite clearly that declines in sales revenues, not increases in costs, and certainly not increases in depreciation costs, were primarily responsible for the declines in McWane's profitability on DIWF production in this period.

Respondents have also put forward a number of specious claims in relation to the threat of further material injury presented by imports of DIWF from China. Specifically, claims have been made that such imports are tapering off and present no threat of future material injury to the domestic industry due to their diminishing presence in the U.S. market. Respondents continue to cite to the projections of falling volumes for interim 2003 in the foreign producers' questionnaire responses despite data now on the record from both U.S. importers and the official import statistics showing that imports in 2003 have continued to increase.

In other respects, the foreign producers' questionnaires illustrate very clearly just how focused the Chinese industry is on the U.S. market and the massive threat it presents to the domestic industry. Exports in the United States account for the vast majority of DIWF produced in China, with Chinese producers projecting that exports to the U.S. market in 2003 will represent 97 percent of their total production of the products.

Further, based on data reported for 2002, Chinese producers have sufficient excess capacity to increase their exports to the United States by 37 percent above their 2002 peak without any further expansion of production capacity.

I'll end it there, and I would like to now turn it over to the members of the domestic industry, who will convey some of their experiences as to the injurious effects of rapidly increasing imports of ductile iron waterworks fittings from China.

MR. ROSENTHAL: Our next witness will be Mr. David Green.

MR. GREEN: Good morning, Madam Chairman, and members of the Commission. My name is David Green. I am the president of Ransom Industries, LP.

Ransom Industries is a subsidiary of McWane, Inc., and is responsible for overseeing and managing the operations of two of the three facilities owned by McWane that produce ductile iron waterworks fittings, DIWF, in the United States. In particular, Ransom Industries is responsible for managing the operations of Union Foundry Company, located in Anniston, Alabama, and Tyler Pipe Company, which operates in Tyler, Texas.

McWane also operates a third facility, the Clow Water Systems Company in Kashoctan, Ohio, that produces ductile iron waterworks fittings.

The three fittings facilities owned by McWane account for a significant majority of the remaining domestic production of DIWF in the United States. At the time of the Commission's 1993 dumping investigation, there were six domestic producers in the United States. There has been a dramatic reduction in the domestic production of DIWF since then.

Of those producers, American Cast Iron Pipe Company has shrunk domestic fitting production to a fraction of prior levels and now imports some fittings. Griffin Pipe Products ceased domestic production of DIWF altogether and is buying import product. U.S. Pipe and Foundry Company closed a fittings production facility in Anniston, Alabama, earlier this year, and its current production of the subject product is far below its 1993 production levels.

The impact of growing volume of imports of DIWF from China on our industry has been devastating. We are now at a point where we cannot continue to incur the operating losses we have been suffering. Absent relief from the disruptive effects and significant downward pricing pressures of the Chinese imports entering the United States, we will be forced to shut our production facilities, resulting in the end of volume production of DIWF in the United States and our country's complete dependence on imported waterworks fittings, a key component of our domestic potable water supply infrastructure.

Our industry's need for import relief, as a result, is acute, and it is urgent. Earlier this summer, we reduced the production volume at Union Foundry by approximately 44 percent, and we were forced to let 195 employees go when we shut down a modern, automatic molding line that was installed just three years ago. We don't know how much longer we can continue to lose money on every pound of product we sell.

McWane and Ransom Industries have a strong desire to continue producing ductile fittings in the United States, and we are committed to making additional investments in our facilities and personnel to further increase our competitiveness in the event our industry receives an import-relief program.

This industry is both highly competitive and capital intensive. To stay competitive, producers must continuously make capital investments to maintain and improve production facilities. In September, however, we were forced to decline an additional investment at one of our facilities, based on the uncertain future of the industry.

We have already made significant investments to improve productivity as well as our safety and environmental compliance. The investments made to date, however, have been insufficient to enable us to deal with the unprecedented volume of low-priced imports of ductile fittings from China surging in the United States. It is absolutely crucial that we have the opportunity to realize a reasonable return on these investments.

I would like to address two points. The Respondents have testified that McWane dominantly ties its fitting ties to ductile pipe sales. This is simply not true. In fact, our fittings are installed more, by a factor of two-to-one, to plastic pressure pipe, which McWane does not produce.

Secondly, the partners opposing the domestic industry's request for relief have argued that our recent investments to strengthen workplace safety and environmental performance are the cause of our current financial situation. These assertions are also wrong.

Over the years, McWane has bought a number of failing foundries whose previous owners had failed to invest in modern equipment, as well as environmental and workplace safety compliance. McWane, by contrast, has made substantial investments in its facilities and save thousands of high-paying American jobs.

The company's commitment to the promotion of worker safety and a clean environment is longstanding. McWane has specifically made significant investments in the Union, Clow, and Tyler facilities since they were acquired in 1977, 1985, and 1995, respectively. These expenditures are a known and expected requirement of doing business in the foundry industry in the United States. Such investments were regularly undertaken by McWane long before the recent publicity our facilities have received.

The workplace safety and environmental investments made at McWane facilities over the last several years do not explain the domestic industry's current financial condition. Rather, it is the large volumes of low-priced imports of DIWF from China that have caused us to lower our prices and reduce production on the DIWF that we are able to sell that are to blame for the industry's current condition.

The domestic producers and their employees are awaiting a signal from the Commission and the president. We are a long-term domestic producer and desire very much to continue our operations in the United States. Absent a period of relief from the large volume of low-priced imports from China, however, we will be forced to close domestic production facilities and to source DIWF from abroad. If we have to turn to imports totally, this would result in a loss of nearly a thousand manufacturing jobs in Ohio, Texas, and Alabama and would add to the growing number of manufacturing jobs, high-paying, mind you, that have been lost in the United States within the last few years.

Accordingly, we request that the Commission reach an affirmative market-disruption finding and recommend that the president implement a 95 percent tariff on all imports of DIWF from China.

We appreciate the hard work by the Commission and its staff on this case. Your work is vital to the continued existence of our industry. I would be pleased to answer your questions at the appropriate time.

MR. ROSENTHAL: Mr. Murray?

MR. MURRAY: Thank you. Good morning. My name is James R. Murray, and I am vice president of business development for the United States Pipe and Foundry Company, headquartered in Birmingham, Alabama.

The United States Pipe and Foundry Company is a wholly owned subsidiary of Water Industries, Inc., a publicly owned company listed on the New York Stock Exchange and traded under the symbol, WLT. U.S. Pipe, the largest domestic producer of ductile iron pipe in sizes four through 64 inch, celebrated its centennial year in 1999.

Today, I sit here representing a company that has successfully served the domestic water industry for the past 104 years. Unfortunately, in at least one of our most important products, ductile iron waterworks fittings, however much we celebrate the past, the future is in serious jeopardy.

U.S. Pipe perfected the production of ductile iron pipe, which is superior in strength to cast iron, and was the first in the industry to use ductile iron exclusively for pressure pipe and fittings. U.S. Pipe has also been a significant producer in the United States of the product subject to this investigation, ductile iron waterworks fittings, and hopes to be able to continue producing these fittings in this country.

Our company makes a full range of sizes of ductile iron waterworks fittings, from four to 64 inches in the compact category and from three to 48 inches in full-bodied, ductile iron waterworks fittings.

I'm here today because my company strongly supports the petition filed by McWane. In review of the public versions of the briefs filed by the Respondents, it is clear that they are hoping to win this case by a strategy of divide and conquer, claiming that only McWane has been struggling financially and that McWane's problems are not caused by imports from China. I can tell you that this is not true. While I cannot discuss publicly the financial performance of U.S. Pipe's waterworks fittings business, our questionnaire response lays out in very clear terms why we need relief requested in this case.

Anyone with the least amount of business acumen who has reviewed the financial results of the ductile iron waterworks fittings business of U.S. Pipe, as submitted in our confidential questionnaire, would realize that the company has had, and continues to have, a significant problem. I might add that any reviewer's attention should also be directed at the amount of capital monies that has been reinvested over the period of time covered by the questionnaire. Clearly, this is not a business at U.S. Pipe that has been starved for capital, and despite the infusion of these capital monies, the situation remains dire.

I assume that U.S. Pipe's performance in the waterworks fittings business is very much in line with the other domestic producers as well. Imports of ductile iron waterworks fittings from China are our number one competitive problem, and I believe this is also true for McWane.

The fact that U.S. Pipe has been struggling to compete with low-priced Chinese imports so much was part of the reasoning behind the recent closure of our Anniston, Alabama, plant in April of this year. That closure was permanent. It is not recoverable. It not only meant a loss of tax revenue at local and state levels but a permanent loss of 100 much-needed jobs in Anniston and many other jobs in businesses that served our plant, such as raw material suppliers and energy and transportation services providers.

In our effort to stem further lost sales, we have also had to reduce prices and roll back price increases. We have also had to reduce our workforce at our Chattanooga, Tennessee, ductile iron waterworks fittings plant as a result of sales lost to imports, even though some of our production at the Anniston plant was moved to Chattanooga. Over one-third of the ductile iron waterworks fittings workforce lost their jobs at the Chattanooga plant since the beginning of last year, despite the shift in production from Anniston. We also had to let go five sales personnel, a significant cut for that type of staff, but even more, it is a statement of our declining market share.

What U.S. Pipe has had to do this year is drastic but by itself will not be enough for us to regain strength in the market. We need the relief requested in the petition so we can get pricing for our products to a level where we can make a reasonable return. If we do not get the relief being sought, we must consider the option to exit altogether the production of ductile iron waterworks fittings. If we have to do this, it would leave only one other domestic supplier of the product, that is, if McWane could still remain in the business.

If the trends we've been seeing continue, there may be no domestic suppliers of this product that is critical to delivering potable water to this country's infrastructure. We support the request for a 95 percent tariff on imports of ductile iron waterworks fittings from China. This tariff rate may be higher than the Commission has recommended in the past, but we need a tariff this high to receive any meaningful respite from the extremely low prices existing in the market.

Finally, I want to thank the Commission and staff for your efforts and hard work on this investigation. I hope my testimony has been helpful, and I would be happy, at the appropriate time, to answer any questions. Thank you.

MR. ROSENTHAL: Mr. Gerard.

MR. GERARD: Thank you. My name is Leo Gerard, and I'm the international president of the steel workers union, and I'm here today because it's actually been a little over two months, and I missed all of you, and you'll be happy to know that I didn't bring a couple hundred people with us this time. That probably shows the financial state of the union, as well as the financial state of the industry we represent.

Let me just very quickly say that our union represents employees at eight McWane facilities, including Tyler Pipe and Union Foundry, and these are two of three foundries in which McWane manufactures ductile iron waterworks fittings. Our members also produce ductile iron waterworks fittings at U.S. Pipe's Chattanooga facility that you heard about in Tennessee, where approximately 250 members are currently employed at that facility. That number is down from 400 that worked there in 1998.

Imports of this product from China have already had a significant, negative impact on our members. Several months ago, Union Foundry, as you heard, was forced to shut down its Anniston, Alabama, facility, in which we lost 145 jobs. This announcement was made only several months after U.S. Pipe and Foundry completely closed its Anniston facility, resulting in the loss of 80 jobs.

CHAIRMAN OKUN: Mr. Gerard, I hate to interrupt you, but can you just pull your microphone a little bit closer?

MR. GERARD: Oh, okay.

CHAIRMAN OKUN: Thank you.

MR. GERARD: The loss of 80 jobs. While it's often easy to gloss over these numbers, as you know, when I testify here I always try to tell you that this is not just a technical issue; this is an issue of human beings, real lives, important industries, family-supporting jobs and communities.

No American should lose his or her job as a result of a surge in low-priced imports of Chinese fittings entering the United States. These job losses are of great concern, and the actions taken by this Commission and the president will either help the industry survive or will pronounce the death knell of the industry. I don't think it's extreme to say that the future of this industry in this country is in the hands of this Commission and what you do.

Absent import relief, effective import relief, from the huge volumes of low-priced waterworks fittings from China, there will certainly be additional layoffs and closures in the domestic industry, and, as you've heard, many of us believe it may cease altogether.

I want to jump very quickly, because I know there is a limited amount of time, and express my outrage that in the prehearing brief the Chinese Respondents describe McWane's workplace safety and environmental record as abysmal and claim that the record tarnishes McWane's reputation as a place of dependable employment.

Our members work in those facilities, and nobody that represents Chinese communists has a right to call what our members do and the work that they do as abysmal. They work in those facilities under collective agreements that we've negotiated, and to make those comments is the equivalent of people in glass houses shouldn't throw stones.

That these Chinese communists hired guns to come here and make those kinds of accusations about us, coming from a place that tolerates child labor, prison labor, no environmental standards, no free labor movement, no free press, is an insult to our members and what they do for a living.

We've had some difficulties in the foundry industry. Anyone who has ever been in a foundry knows it's a hot, dirty, dangerous place to work and that every day you have to go to work, and you have to repair and fix and clean the stuff that you did yesterday. And I give credit to McWane for coming in and taking foundries that would have been on the verge of closing, or are already closed, and trying to rehabilitate them and bring them back to life and invest in both the technology and the workplace health and safety.

We have invested a tremendous amount of time and resources in working with McWane, and their president, Ruffner Page, and I have negotiated a protocol for health and safety that we are implementing, and I'm not ashamed to tell you that when that protocol is completely implemented and that all of our members have received the training and development that we've bargained together, health and safety practices and environmental practices at McWane will be amongst the highest in the North American foundry industry and certainly in the water fittings industry.

I would love for us to see what it looks like in a Chinese foundry. I know from people that I've met that have gone to China that have looked at these places that those folks work and have the advantage in this market of paying about one-twentieth of the U.S. wage under circumstances and working conditions that are truly abysmal and truly an outrage. And for them to dare, dare, use that as a defense is an insult. I don't think I can sit here and represent our members without making that as crystal clear as I possibly can.

Let me just say that we are working every day on the health, safety, and environmental issues at McWane. We're working every day on productivity issues. But I will not ask our members -- it would be immoral for you, as a Commission, to expect us to ask our members -- to lower our standard to Chinese standards while they surge into our market, destroy our pricing, take our jobs, and then use that to tell us we can't compete.

There is a travesty going on in this country. The secretary of commerce and the secretary of the treasury -- days run by, but I think the secretary of commerce is either on his way again or just came back from going to try to tell the Chinese communists to quite manipulating their currency and using that as an advantage, let alone their one-
twentieth wage structure -- there are no environmental laws. There are no health and safety laws. There is no free press. There are no free trade unions. I haven't forgotten Tiananmen Square, and I resent it.

This Commission, if it does not grant the relief -- I want to say this in the most respectful way because I truly have a tremendous amount of respect for all of you that I've gotten to know through being here so often. The hard work that you do and the dedication of you and your staff is unprecedented, and I think you're one of the finest agencies in government. But under these circumstances, if this Commission does not respond and not give the tariff relief that we need, you will sentence this industry to death, and you will sentence it to death to Chinese communists who don't enjoy any of the freedoms that we have and use that position, in state-owned industries and a few private industries, to destroy our market.

I can't tell you how much our members are counting on you to fix this problem. I'll be happy to answer any of your questions as well. Thank you.

MR. ROSENTHAL: Mr. Waugaman. The real Mr. Waugaman.

MR. WAUGAMAN: Thank you. I think taking just a second to let what Mr. Gerard said sink in is probably more appropriate than the opening that I was going to start with. I agree 100 percent with what he had to say, and I think it was very apropos to why we're all here today.

I did take an oath to tell the truth this morning, so I, in fact, am the real Mr. Waugaman. My name is Don Waugaman, and I'm vice president of sales and administration for Tyler Pipe, as well as vice president of sales for Tyler Union with Ransom Industries.

The fittings produced by the domestic industry do cover a full range of ductile iron waterworks fittings specified in our petition, including diameters two through 64 inches. We are competitive with the product imported from China in every way, including quality, delivery times, service, and product offerings, but we can't sell as cheaply as the Chinese imports and remain in business. It's that simple.

Ductile iron waterworks fittings are an integral part of municipal water systems and are used mainly to connect pipes, valves, hydrants, and other fittings where there is a change in direction in water flow or a change in diameter of the piping system. Whether domestically made or imported, ductile iron waterworks fittings are marketed almost entirely through distributors. These distributors, in turn, sell to end users who are municipalities, utilities, and contractors. Because of this structure, when we price our products, we have to consider not only what price we would like to get from a distributor but also whether the distributor will be able to then resell the product to end users competitively with imports from China offered by another distributor.

My colleague, Mr. Joe Blair, will address more on the pricing issues in his testimony.

Ironically, we are being injured at a time when housing starts and other construction projects have kept the demand for ductile iron waterworks fittings strong, even in an otherwise weak economy. The U.S. industry's precarious financial situation is not because of declining demand. It is because we have been unable to maintain sales volumes at prices that will allow us a reasonable return.

Years ago, there were greater differences between imported and domestically produced ductile iron waterworks fittings than there are today. The imports were not always of equivalent quality and did not always meet technical standards. Those differences have since been eliminated, leaving price the only real differentiating factor in the purchasing decision. There still are distributors and end users who would like to buy U.S.-made products, not because of Buy America requirements, which, in fact, are few and far between, but out of purchaser's preference. But even that preference is not a deciding factor as pricing gets more cut-throat.

In our prehearing brief, we provided a lengthy list of jurisdictions that have eliminated their preferences for domestic ductile iron waterworks fittings within the past three to four years. These jurisdictions have been offered prices so low, they can no longer ignore the difference.

Thank you, and I'll turn it over to Joel.

MR. BLAIR: Good morning. Thankfully, I am the only Joel Blair, and I am the national sales manager for the utilities division at Tyler Pipe and Union Foundry.

My testimony today may be of particular interest because I have firsthand experience in sales and marketing of both domestic and imported waterworks fittings, including the ductile iron waterworks fittings that are the subject of this investigation.

For several years, I was a partner in a waterworks distribution business in Kansas City, selling ductile iron waterworks fittings. I worked in sales at Tyler Pipe in the mid-eighties, and joined Star Pipe Products as its national sales manager in 1997. I was with Star Pipe until August 2000 and returned to Tyler Pipe at that time.

With that background, I am well versed in the competitive issues concerned in this case. There are many similarities and few differences between the U.S.-made and imported ductile iron waterworks fittings. At the time I was with Star Pipe, I believed that the quality of products being imported was comparable to that of Tyler and Union, and I believe this to be true today.

More important than what I think, though, is what our customers think. Years ago, it was harder for the Chinese to convince customers that their quality was equal to that of the domestic industry. Along with other salesmen at Star, we were fairly successful in getting customers to try Chinese product. Since they met the AWBA technical standards and were lower priced, the imports were bought and found to be acceptable. While some customers are willing to pay slightly more for a domestic product because of reputation and great service, that number has dwindled over the past few years.

In our business, our pricing system is based on a published list price. As a matter of fact, all of the other domestic producers and importers have published list prices that virtually mirror ours. We sell to our distributors at a percentage discount off that list price that vary, depending on local market conditions. Discounts do vary throughout the country. In addition, rebates are paid to most customers. This system is used by the domestic producers as well as the importers.

Determining a market discount for a given area through routine market intelligence is not difficult for either manufacturers or importers. For this reason, it is very easy for importers of Chinese ductile iron waterworks fittings to offer prices that undercut ours. These pricing practices have brought the U.S. industry to the dire situation we are in today.

Chinese ductile iron fittings are selling at prices so low that we have difficulty selling the domestically produced products. We know of nowhere in the country where importers' selling prices are at or above the domestic producers. If we reduce our price to keep our sales volume, they reduce their prices further. In fact, when I was at Star Pipe, the inside sales personnel were given authorization to reduce price to secure an order, and with this kind of flexibility of pricing, many sales were made.

I appreciate your time and will be happy to answer any questions you may have, with the possible exception of how to fix the Redskins.

MR. ROSENTHAL: Mr. Teske.

MR. TESKE: Good morning. My name is Thomas Teske. I'm general manager and vice president of sales and marketing for East Jordan Iron Works, located in East Jordan, Michigan.

East Jordan Iron Works has been in operation since 1883 and has been family owned and operated throughout the history. East Jordan Iron Works is a producer of municipal construction castings, fire hydrants, and waterworks valves. We sell our manufactured products nationally to major distributors, municipalities, and contractors. In the upper Midwest, East Jordan Iron Works operates as a distributor of waterworks products.

I'm here today to speak, in particular, about East Jordan Iron Works' concerns as a distributor of waterworks products. We have purchased waterworks fittings from Tyler Pipe for approximately four years, and we've been buying ductile iron waterworks fittings since the company started making them, approximately 20 years. We've found that Tyler offers us excellent service and delivery, high quality, broad product offerings, and competitive pricing. Tyler maintains a full range of inventory and provides fast and reliable deliveries on a regular basis.

East Jordan is committed to providing our customers with high-quality products that are made in the USA, but we can't compete against distributors of Chinese-produced ductile iron waterworks fittings unless we are able to charge competitive prices to our customers. We know that Tyler Pipe has had to consistently reduce its prices to customers to keep Chinese imports from taking away its market share. They can't keep doing this and stay in business.

We've received solicitations from importers and manufacturers of Chinese waterworks fittings since approximately 1990, and Chinese manufacturers regularly attempt to solicit ductile iron waterworks business from us via the Internet. I've submitted a number of those requests to the Commission.

The quality and breadth of the product offerings has increased over the years, so Chinese product is extremely competitive with domestically produced fittings. While the imports from China have always undersold the domestic product, in recent years there seems to have been greater acceptance of the Chinese product in the marketplace. In the last several years, it has especially been apparent if the domestic producers were to gain the sale against Chinese competition, they would have to lower their price.

As a distributor of waterworks fittings, East Jordan is very familiar with the prices offered by importers and domestic manufacturers because we have to compete against the prices offered by other distributors. The prices at which imported waterworks fittings are offered are lower than the prices from Tyler Pipe.

Our customers do prefer made in USA and are willing to pay a small premium for domestically manufactured product, but other customers, given that the imports meet the quality and technical standards, will simply purchase based on price. We have branches throughout the U.S., and we know that there are some parts of the country where the markets have shifted substantially to Chinese fittings solely because of price. Given this reality, the increasing marketing activities of importers and manufacturers from China are a serious threat to U.S. manufacturers.

There currently is an ample supply of waterworks fittings produced in the United States, but if current trends continue, the number of domestic producers will continue to decline. The only way out of this trend is for the U.S. government to intercede on behalf of the ductile iron waterworks industry and provide a remedy so that the industry can raise its prices to a reasonable level. If this U.S. industry cannot get some relief, we will soon have no domestic source for these critical elements of the country's waterworks systems.

As a distributor that wants to represent quality products are made in the USA, I certainly hope that the Commission can prevent this industry from going the way of so many other manufacturing businesses. Thank you.

MR. ROSENTHAL: In the few minutes remaining, I want to touch on a couple of points I alluded to in my opening statement. As you may recall, in our post-conference brief in this case, we took issue with the views of Chairman Okun and Commissioner Koplan that in Section 421 cases the Congress intended the Commission to focus on imports after China's accession to the WTO.

With all due respect, I don't see any evidence in the legislative history that reflects any congressional intent to focus on post-WTO-accession imports. That's mainly because, as we know, the China-U.S. agreement was basically one sided, as stated by many of the congressional proponents of this provision. The U.S. did not have to make any tariff concessions; and, therefore, one would not expect a surge of imports after China's accession. So focusing on the post-China accession period, I don't think, is justified by the legislative history. I'm sure I'll engage of invite some discussion there. In my desire to ever be provocative, I wanted to throw that out to you.

Having said all of that, though, I don't think it makes a tremendous amount of difference in this case because, as you heard from Mr. Kerwin, it doesn't matter which time period you focus on here; there has been a surge. And even accepting the analysis in the Brake Drums and Rotors case, the time period looked at there, if the same one is used here, you show a surge even greater in our case than in that one.

There are a couple of other unique aspects of the Section 421 remedy that I would love to discuss with you, and Mr. Loeb nicely took the bait to start talking about the Wizard of Oz, and we'll talk about that more later as well. But among the other unique aspects of the 421 remedy that we ought to focus on is, number one, the notion that I think the Respondents have now abandoned that it's an adjustment statute for the U.S. industry and that the U.S. industry has to file adjustment plans.

The Commission, I think, rightly rejected that in your previous cases, and we haven't heard it in this case, but one of the reasons why 421 doesn't require adjustment and 421 is different from the Section 201 cases is the recognition that the Chinese economy and Chinese industries are different.

Mr. Gerard said it better than I can, and that is, China is different, and the administration that negotiated the accession agreement and the Congress that passed this understood that adjustment in this case and the periods of relief have to reflect that difference with the Chinese. The notion that U.S. industries that are facing surging Chinese imports have to adjust enough to bring down their wages, not spend money on labor and the environment in order to be more competitive doesn't make sense, and that was not the congressional intent.

I'll spend more time on this later, if you would like, but really, the reason why the safeguard provision was in there and lasts for 14 years is the recognition that the Chinese economy has to change. Currency policies have to change. Their wages have to go up. They have to start acting more like a market economy. So to put the burden and the expectation solely on domestic industries to adjust to the import competition and not expect the Chinese to change, I think, is misplaced. By the way, I'm not saying that as an excuse for domestic industries who don't try to modernize and don't do everything they can to become more efficient.

You know from the record in this case that this domestic industry has spent a lot of money modernizing, has spent a lot of money reducing their costs. So that's not what this argument is about. It's trying to get the Commission and the administration, ultimately, to take a much more fundamentally different view of Section 421 than it apparently has taken in previous cases and certainly different than the approach it's taken in Section 201 cases.

I would like to turn next to the issue raised in respondents brief that Mr. Gerard so eloquently reference, and that is the notion that somehow McWane is the cause of its own problems because it spent money on environmental and workplace compliance, and, Respondents, imports aren't the problem. It's all that money you've spent on safety and environmental compliance.

To the extent these arguments are sincere, they are totally baseless. To the extent they are efforts to bias the Commission against McWane, they should be recognized as such and rejected.

Now, let's be clear. McWane has had its problems. The well-publicized, New York Times front-
line reports presented, though, a very, very distorted and inaccurate view of the company. Certainly, McWane acknowledges that during a period of rapid growth it made mistakes, and its safety and environmental record did not live up to its own standard. It's paid fines. It continues to be responsible for rectifying those mistakes it's made previously.

There is no denying that there have been problems. But those reports, well publicized and, of course, repeated numerous times in the prehearing briefs here by Respondents, ignored a great deal of information that clearly illustrates McWane's commitment to environmental safety and safety management. Unfortunately, as a privately held company, McWane has had the view that it really doesn't make a lot of sense to pick a fight with an opponent that buys ink by the barrel full, so it has not mounted a public relations offensive to combat the distorted picture that's been presented in the press.

What it's done instead is to mount a safety and environmental offensive, and you heard Mr. Gerard talk about the efforts that are being made at McWane facilities to make the McWane plants a model workplace. The McWane management team, which assumed operational control of the company five years ago, has demonstrated a strong commitment to safety and environmental excellence, and they are delighted to join in a partnership with Mr. Gerard and the USWA in that effort.

Ironically, Respondents want to twist McWane's efforts to protect its workers and the environment as a reason to deny relief in this case. Can you believe that argument? According to Respondents, McWane's injury isn't caused by imports; it's all that spending on workers and the environment. Respondents would actually deny relief under this theory to an industry that is spending money, $100 million over the last several years, to be precise, in order to benefit an industry in China that incurs no such costs. It's hard to imagine an argument more cynical. It's also one of the more shameful arguments or shameless I've heard, and I've heard a few in my days here at the Commission. I may even have made a few.

To criticize, as the Respondents have done, any American producer, let alone one that's spent $100 million on safety and the environment, gives new meaning to the term -- actually it's not a Chinese term either -- "hutzpah," which for those who need a translation, is unmitigated gall.

Thank you, and I have a suspicion that I won't need to invite your questions.

CHAIRMAN OKUN: Thank you. Thank all of you for your testimony today, for your willingness to be here to answer our questions, and for all of the information that you've provided and will continue to provide. I want to thank, in particular, the industry witnesses who take time from their regular business to travel to the Commission, and to Mr. Gerard, as a representative for labor, to be here to tell their story as well.

Before we begin our questioning, I want to ask witnesses that when you respond, to please restate your name, not because we don't now believe that we know who is out there but because we can't always see the name tags, and it helps our reporter as well. And with that, Vice Chairman Hillman will start the questioning this morning.

VICE CHAIRMAN HILLMAN: Thank you, Madam Chairman, and I would join the chairman in welcoming you all, and welcome back to many of you. Mr. Gerard, you're right. We've missed you over these couple of months. We do appreciate everyone taking the time to be with us this morning.

I guess, if I can, I want to start by making sure I understand some of the pricing issues that a number of you had talked about. Mr. Teske, maybe if I can even start with you, and I would start by thanking you for being here. It's always helpful to have some folks on the distribution side as well to help us understand some of the issues about how products get priced in the market.

You mentioned that companies are willing to pay some premium sometimes to get U.S. product. Can you help give me a sense of how much of a premium, and has there been any change over this period of investigation in terms of how much of a premium somebody might have been willing to pay to get U.S. product?

MR. TESKE: Yes. Thomas Teske, general manager and vice president of sales and marketing, East Jordan Iron Works.

It's probably two ways to answer that. Number one, in some markets they prefer made in USA that we're in. In Michigan, it's a heavily made-in-
USA area, and so the preference is towards USA suppliers.

VICE CHAIRMAN HILLMAN: Just so I'm clear, when you say "preference," is this a legal preference --

MR. TESKE: No.

VICE CHAIRMAN HILLMAN: -- where they are required, or it's a --

MR. TESKE: There is no legal preference. It's just the local municipalities may have a preference to have made in USA or to know the manufacturer. They may specify a manufacturer like Tyler, Clow in their specifications, and so they have a preference to those products.

VICE CHAIRMAN HILLMAN: Would you have a sense of what portion of them would actually specify, "I want Tyler. I want Clow. I want U.S. Pipe. I want a particular U.S. producer"?

MR. TESKE: They probably all have a specification area in a job, but it also may say "or approved equal." So it might have those names, and then it would be approved equal. And in a fitting case --

VICE CHAIRMAN HILLMAN: Would an approved equal include an import?

MR. TESKE: It could, conceivably, yes.

VICE CHAIRMAN HILLMAN: Okay.

MR. TESKE: And then in other markets, say, the greater Chicago Land area, there's probably 23 distributors of product, of waterworks products there, and some are domestic, and some are import, and a number of them may blend if they can, where they supply both.

VICE CHAIRMAN HILLMAN: Okay. Getting back to this premium and the size of the premium.

MR. TESKE: I don't know. It's hard to quantify.

VICE CHAIRMAN HILLMAN: A couple percent?

MR. TESKE: Five percent.

VICE CHAIRMAN HILLMAN: Okay. And would you say it's changed over the period?

MR. TESKE: Well, I think right now what we're seeing throughout the country is that even though housing is going strong, most of the municipalities and state governments are suffering, and so everyone is looking at costs, and everything is more competitive. It's more competitive between distributors to sell products. So everyone is looking to see how they can improve or maintain a margin.

VICE CHAIRMAN HILLMAN: Now, Mr. Blair, I think you were the one who testified about this issue of working off a list price and then offering a discount off of it. Am I correct that everyone in the market does that, works off of a list price and then offers a given customer a certain percentage discount off of it?

MR. BLAIR: Yes. I'm Joel Blair. I'm the sales manager for Tyler Union.

That is the way that we price our product in the market: a list price with a multiplier discount to various parts of the country, and those discounts vary.

VICE CHAIRMAN HILLMAN: So would the relationship between the price of various fittings products, in other words, a certain size, certain shape would be a certain price, and then another size, another shape, another price -- those relationships wouldn't vary. In other words, if you're giving a discount, you're giving the same discount off of the entire list, or do you change the amount of discount specific to a given product?

MR. TESKE: We apply the same discount to all fittings.

VICE CHAIRMAN HILLMAN: Okay. Would it be your sense that that's what everybody in the industry does? Mr. Murray, would you have any comment on what U.S. Pipe would do?

MR. MURRAY: I would agree, Ms. Hillman, that that's the industry fashion, and U.S. Pipe follows that.

VICE CHAIRMAN HILLMAN: And then I believe, Mr. Blair, in your testimony you said that the amount of the discount may vary from region to region in the country in some ways. Give me a sense of how much that variance is.

MR. BLAIR: Can I take just a minute?

VICE CHAIRMAN HILLMAN: Sure.

(Pause.)

MR. WAUGAMAN: Excuse me. I'm Don Waugaman.

VICE CHAIRMAN HILLMAN: Sure. Go ahead, Mr. Waugaman.

MR. WAUGAMAN: Maybe I should answer that. The discount can range between 52 percent off of list and as much as 71 percent off of list.

VICE CHAIRMAN HILLMAN: Okay, okay. And then help me understand how frequently fittings are sold as a larger package of goods, and is there a sense that if somebody is prepared to buy X amount of pipe, and you're going to add in such-and-such amount of fittings, you give a bigger discount on the fittings or a bigger discount on the pipe. Help me understand how much product is sold as part of a package that would include things other than fittings.

MR. WAUGAMAN: This is Don Waugaman. I'll answer that. It's very easy to answer. Absolutely none of it. We do not sell our fittings as part of a package, although that was alluded to by the Respondents earlier. We never sell to a distributor our fittings as part of a package with any other products, whether it be pipe or hydrants or anything else, when we sell our products to a distributor.

VICE CHAIRMAN HILLMAN: Mr. Murray, would you have a sense, from U.S. Pipe? Do you produce --

MR. MURRAY: Well, I think the qualification that Mr. Waugaman used was correct: to a distributor. There is another family of customers out there, the contractors, that obviously when they ask for quotations for jobs, they include pipe, valves, hydrants, fittings, things of that nature, so they are, in a sense --

VICE CHAIRMAN HILLMAN: But you're not selling directly to them. It's the distributors that are selling to them.

MR. MURRAY: No. We also sell directly to contractors, absolutely.

VICE CHAIRMAN HILLMAN: And your sales to a contractor might include some sort of packaging of pipe and other products.

MR. MURRAY: Yes.

VICE CHAIRMAN HILLMAN: Okay. And what portion of your sales would be to this kind of a contractor?

MR. MURRAY: Well, in ductile iron waterworks fittings, it depends on the size of those fittings. On the smaller fittings, a large percentage. On the larger fittings, a much smaller percentage.

VICE CHAIRMAN HILLMAN: Okay. Now, Mr. Waugaman, you're basically indicating that you're not selling to this kind of a contractor that Mr. Murray is.

MR. WAUGAMAN: That's correct. All of our fittings from Tyler and Union are sold 100 percent to distributors. I'm not an officer with Clow, but my understanding is that Clow does sell a small percentage of their fittings to end-use customers, contractors and municipalities.

VICE CHAIRMAN HILLMAN: Okay. Mr. Teske?

MR. TESKE: Thomas Teske. We buy fittings from Tyler, and then we package them with Griffin Ductile Iron Pipe. We've represented Griffin Ductile Iron Pipe for over 40 years. And then we quote that as to the job, or with plastic pipes also.

VICE CHAIRMAN HILLMAN: Okay. And then when you do that, are you trying to, in essence, price? Is there a relationship between how much of a discount you might do on the fittings versus the pipe?

MR. TESKE: Well, they are both sold at a different markup, if that's what you mean.

VICE CHAIRMAN HILLMAN: Okay.

MR. TESKE: They are independent events, though.

VICE CHAIRMAN HILLMAN: Okay. I appreciate that.

MR. TESKE: The customer purchases a package, but how we price them -- they are not all marked up the same way.

VICE CHAIRMAN HILLMAN: I'm sorry. Mr. Green?

MR. GREEN: Well, whenever there is a break.

VICE CHAIRMAN HILLMAN: No, no. Go ahead.

MR. GREEN: Are you finished? David Green, president of Ransom Industries.

I think it would be simpler, I guess, for the Commission if we explain certain things. U.S. Pipe -- Jim is also a producer of ductile pipe, so we have separate business groups within the McWane family, and we keep them separate for a specific reason. I'm in charge of the ductile iron waterworks fittings and sole piping products, et cetera. There is another individual on my level that is responsible for all of the fire hydrants and water valve sales, another guy that manages all of the ductile pipe manufacturing facilities and their sales approach.

We, as a company, my companies, we don't package, period, because I don't, in my group of companies, don't produce ductile pipe. I have no control over ductile pipe, so I don't package. Typically, Clow Water, with their little bit of ductile fittings that they produce relative to us and the total industry, they are a ductile pipe plant. So where the ductile pipe plants in the country sell about 50 percent of their product, I think, to contractors, that's a whole other issue besides what we deal with with Ransom, Tyler Pipe, Union, et cetera.

VICE CHAIRMAN HILLMAN: Okay. I appreciate that. Mr. Rosenthal?

MR. ROSENTHAL: You do have in the record the percentage of fittings that go to distributors versus end users.

VICE CHAIRMAN HILLMAN: Right. I'm aware of that. I was just trying to understand this issue, to the extent that there is any of this packaging going on, who is doing it? If there is anything you want to add on how the prices of the relative pieces of the package, the fittings versus the pipe, get set. Mr. Teske, do you have a sense of that? Are you looking at independently what's going on in the market for pipe versus what's going on in the market for fittings? How do you decide what to price?

MR. TESKE: Definitely. I mean, the distributor quotes construction projects and, in many cases, our pricing on fittings is somewhat standardized. The price of pipe varies on every job almost. And so we call for quotations for pipe, and then we put a bid quote together, and we quote the product to the contractors or the municipalities.

VICE CHAIRMAN HILLMAN: Okay. Thank you very much. I appreciate those answers.

CHAIRMAN OKUN: Commissioner Miller.

COMMISSIONER MILLER: Thank you, Madam Chairman. Let me join in thanking all of the witnesses for being here today. Thank you, Mr. Gerard, as well for adding the union's perspective.

My questions, at least the first round, are similar to Commissioner Hillman's in the sense that I'm trying to understand the industry better and what you do. I'm looking at this and going, I haven't seen, at least, this particular fitting industry. You know, a few weeks ago we had a hearing on malleable cast iron fittings, and I'm remembering -- we always see the industry in different bits and pieces, and you look different, and I want to make sure I understand exactly a little bit more about the industry.

And at least, to start, I think I'll sort of aim some of my questions toward the product side. It was useful in terms of the market distribution that you were just talking about with Vice Chairman Hillman.

Help me a little bit on understanding, for example, the differences and what's been happening in relative markets of the full-bodied and compact product and the size ranges. It looks to me like we're seeing some changes or some shifts. Can you just help me understand the products and what relationships might be going on and changes between the full-bodied and compact product?

MR. WAUGAMAN: Let me address that. I'm Don Waugaman.

I'm going to give some numbers out here that I think are appropriate to give in an open forum. Full-bodied fittings are a small percentage of the fittings being currently sold in the United States. I don't have a breakdown, of course, of imported fittings, but in looking at domestically produced fittings, full bodies now only represent approximately 15 percent of the tonnage sold in fittings in the United States.

COMMISSIONER MILLER: Has that changed over time?

MR. WAUGAMAN: That's changed over time. If you look at the time of the investigation, there has not been a great change, to my understanding. I've got numbers back as far as 2000, and at that time it was around 18 percent. So there has not been a big change.

My understanding, and maybe Mr. Blair can answer this, is the majority of the change from full- bodied to compact fittings took place in the late or mid-eighties, probably as late as the early nineties. Joel, can you comment on that?

MR. BLAIR: Joel Blair, Tyler Union.

Yes. The major change from full bodied to compact occurred in the eighties, early nineties.

COMMISSIONER MILLER: Why? What is the difference between these two products that caused the shift?

MR. BLAIR: The major difference, in addition to price, is that they are lighter fittings. They are easier to handle. They are probably more worker friendly. They perform the same functions.

COMMISSIONER MILLER: The compact.

MR. BLAIR: That's correct.

COMMISSIONER MILLER: Mr. Rosenthal?

MR. ROSENTHAL: Commissioner, may I present a little historical perspective?

COMMISSIONER MILLER: Please.

MR. ROSENTHAL: When we filed the dumping case on ductile iron waterworks fittings in 1992, decided in 1993, we filed the case on compact ductile iron waterworks fittings and excluded full bodied at the time and gray iron and actually excluded over 16 inches for the following reasons. By the time we filed that case, the market had already moved away from gray iron fittings to ductile because ductile had superior strength and was seen as a better product and moved away from the full bodied, which was bigger, heavier, et cetera, to the compact.

So the vast majority -- 85 percent, 90 percent -- of the industry overall is in the compact and the ductile fittings, and the reason why there are a few laggards out there, some municipalities have already kind of committed to full bodied and maybe even gray iron, still. I don't know if there is much out there. But they have been more reluctant to shift over time. But most of the industry, by 1993, had shifted to the compact and ductile. As you'll see from the statistics as well, while there is still a fair number of sales in total of product over, let's say, 24 inches, 90 percent of the market is probably 24 inches and below in terms of size. Compact and ductile is where the vast, vast majority of the market is and has been since the early nineties.

COMMISSIONER MILLER: Okay. And you alluded to the size issue. I look at the differentiation we have. We have information in the staff report on the, you know, over and under 30 inches, but then I look at our pricing products, and they are all a good bit less than 30 inches. I think they are mostly in, like, six and eight and such. Is that where most of the industry is? We have a much larger scope in terms of size than we do in our pricing products, so I want to understand how our pricing products relate to the overall.

MR. WAUGAMAN: Maybe I can answer at least part of that question. And, again, on the statistics that I have, which are based on domestic producer sales, up through 24 inch is approximately 90 percent of all of the tonnage of fittings sold. When you look at that, and I don't know how those products were picked, but when you look at our products with the highest amount of unit sales are those in that range of the products that were designated for pricing in the questionnaire.

MR. ROSENTHAL: And just to maybe make obvious the point, if 90 percent is below that cutoff on tonnage, it means that, on a unit basis, there are actually many fewer units in that 10 percent because these are heavier products.

COMMISSIONER MILLER: Okay.

MR. ROSENTHAL: There are relatively few sales in those heavy products. They exist but not very many.

COMMISSIONER MILLER: Okay. Now, when it comes to the imported product, the Chinese product, tell me where you see them competing the most, and, again, whether any increases in one area versus the other. Anybody?

MR. WAUGAMAN: If you want to know where they are competing, if we can get a map of the United States and show --

COMMISSIONER MILLER: I mean in terms of size, not --

MR. WAUGAMAN: Oh, okay. I thought you meant where they are competing. That's a pretty big geography.

To the best of my knowledge, they offer fittings in every size that we manufacture, and I think if you'll look at their catalogues and compare them to ours, they have at least as many different SKUs, product ranges, and sizes that we offer, even some larger diameter than we offer as Tyler Union, but there are other domestic manufacturers that offer some of those larger sizes above 48 inch.

MR. MURRAY: Commissioner Miller, we believe the market -- James R. Murray, vice president, U.S. Pipe -- we believe the market is 75 percent in volume for the 12 inch, and we personally believe imports are in that range in terms of their size. We estimate 80 percent, just as a matter of internal analysis, that 80 percent of all of the Chinese imports are in the four-to-twelve-inch size range.

COMMISSIONER MILLER: All right. One reason I asked that question, I'm just eyeballing this, frankly, and what I'm looking at the industry representatives aren't able to see. So you can comment, Mr. Kerwin, if you want to, either now or post-hearing.

You know, I see the overall import data, what it suggests in terms of growth in import volume. Okay? When I look at the growth in volumes in our pricing products, I don't quite see the same degree of an increase, I don't think. Do I? I mean, I'm eyeballing this pretty much on the grass, but that's what it looks like to me.

Now, we don't have great coverage on the pricing products, and I take that probably to be because there are so many varieties of products that are produced and sold here. Is that a fair comment, Mr. Kerwin?

MR. KERWIN: Yes, yes. The coverage on the pricing products, even with the five that the data was collected on, is relatively small compared to the overall marketplace. But, yes, you're talking about literally hundreds, perhaps even up into the thousands, of different stock-keeping units that fall under the definition of this product.

So it's unlikely -- even though that range of products and these individual specifications are some of the most common, there simply aren't any individual products that are going to take up, say, 10 percent of the market. So I think your observation is accurate, but due to the limited size of the sample, you can't draw too many conclusions from it.

COMMISSIONER MILLER: Okay. Mr. Rosenthal, do you have anything to add?

MR. ROSENTHAL: One of the interesting phenomena that you'll see here if you look at the data -- we'll join the argument about what's a surge and when is a surge and argue there has been a surge if you measure it, certainly from '98, certainly from 2000, and I would argue that what you have here from the year 2001 is a continuation of the surge because imports have had record levels and continue going that way. Okay? That's a backdrop to answer your question, even though it goes to another issue.

What's happened in the last year, year and a half, of the period of investigation is that as market share by the Chinese continued to increase, the domestic producers, and I'll speak principally for McWane, said, look, we have to drop our prices, get more competitive with the Chinese in order to prevent them from coming into the marketplace and gaining more market share. So you have the data there, and you can see what has happened in terms of pricing. The domestic producers were essentially trying to slow down the import growth by dropping price, and I think that's the data that's reflected in your data.

COMMISSIONER MILLER: Okay. All right. My time is up, but perhaps I'll come back to this.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you. I want to thank the witnesses for their direct testimony and their responses to the questions thus far.

Mr. Rosenthal, if I can start with you? I note that there's a New York Times article provided by the Chinese Respondents in their prehearing brief at page 29 that dwells for the most part on the tragic death of Mr. Roland Hosken on June 29, 2000, at McWane's Texas foundry.

But, it also notes at the same time that Mr. Loeb argues at page 11 of his prehearing brief, and I quote: "The Commission has data providing full year import information on Chinese DIWF for 2001 and 2002 and half year data for full year 2003."

I'm continuing the quote: "The Commission should and must use this 2001-2003 data, not data from earlier portions of the period of investigation, to evaluate whether imports are increasing rapidly." As part of the basis for his argument he cites our prior 421 case, the Brake Drums case.

Now, I've got the full text of that footnote that both sides have referred to. Let me say to you that consistent with my analysis then I will continue to focus on the more recent time in this investigation, but our period in this investigation begins in January 1998 and runs through the first half of 2003.

When I say I'm going to focus on the more recent time, I begin with the year 2000 as my base period, not 2001, okay? That is, I believe, consistent with what I said before. I want to understand where you take issue with that, Mr. Rosenthal.

MR. ROSENTHAL: We would be delighted if you focused on the year 2000 forward, as you saw from Mr. Kerwin's statement, because that's exactly the period you used in the Brake Drums and Rotors case, and if you use that period our case for rapidly increasing imports or surge, if you want to put it that way, is even stronger than in that case.

I don't take issue with that. Perhaps my comment in my statement earlier has more to do with a Talmudic reading of statutory interpretation than it does in terms of the practical impact on this case because I think if you look at this case from 2000 forward you get the result that we urge upon you, which is a finding of rapidly increasing imports.

My comment had to do with the reason why post WTO accession was not necessarily a good trigger for looking at the most recent period. I do believe that there may be other reasons to do exactly what you've said. I appreciate what you also said in the footnote, which is you do look at the entire period, and you use that as a base. I don't have any argument with that aspect at all.

COMMISSIONER KOPLAN: Well, I'm glad that we were able to clarify that. Thank you.

Having said that, let me stay with you for a moment. This next question is my one bite of the apple because in a 421 case we're covering both injury and the remedy, so let me run through this with you if I could.

I've read the section of your prehearing brief urging in the event the Commission reaches an affirmative determination we should recommend to the President that he impose a 95 percent ad valorem tariff on subject imports. In fact, I read it, but I'm not sure I understand it. In order to help me better understand what you are proposing, let me ask you a series of relatively short questions.

First, how long do you propose the period of relief should remain in effect, because I didn't see anything in that section that refers to that. We can go through these one at a time.

MR. ROSENTHAL: We would recommend five years.

COMMISSIONER KOPLAN: Okay. How should that period of five years be phased out?

MR. ROSENTHAL: We have not agreed amongst ourselves about what the phase down period should be. I don't believe there is a requirement in the statute for a phase down here, and I'd like to if I could answer that more fully in the post-hearing brief.

I do, and I don't want to take a lot of your time here, but this is a different animal, 421. I know you appreciate that.

COMMISSIONER KOPLAN: I do appreciate that, and I do know it's not a requirement. I'm also aware that you're asking that this be the first case where the President agrees and goes in the affirmative on this.

MR. ROSENTHAL: Yes.

COMMISSIONER KOPLAN: I know you're not required to, but I wanted to ask you because I didn't see anything on it. This issue wasn't discussed in this section as to whether or not you're going to come up with one.

MR. ROSENTHAL: The answer is despite what you might think, we are practical. We will come up with a phase down period, but our view is that for the first several years of relief there should be a minimal amount of reduction for the reasons that we have stated, which is the large differences in the FOB value of the Chinese shipments, FOB Chinese port, and the U.S. producer cost and prices, and we think that a high tariff is necessary to make up that gap.

Obviously if things change, if, for example, the currency changes, if wages go up more rapidly in China, then the relief can be phased down more rapidly. I don't want to filibuster on this question.

COMMISSIONER KOPLAN: No, because I want to continue on with the question.

MR. ROSENTHAL: Okay.

COMMISSIONER KOPLAN: Your responses to these for purposes of post-hearing, at least from my standpoint, would be useful.

MR. ROSENTHAL: Absolutely.

COMMISSIONER KOPLAN: All right. The next question along this line is how much revenue do you estimate will be generated each year by resultant price increases for the domestic industry, assuming that your proposal is accepted?

I know you can't give me that now, but I would like that information when you do get into this in the post-hearing.

MR. ROSENTHAL: We'll do that. One of the difficult parts of always trying to do these calculations is trying to figure out how much duty absorption there will be, but we will do our best.

COMMISSIONER KOPLAN: I know you mentioned that in your brief, but I would appreciate it if you do do your best.

MR. ROSENTHAL: Certainly.

COMMISSIONER KOPLAN: How will your proposed tariff affect the quantity of subject imports each year that the relief remains in effect?

MR. ROSENTHAL: We will answer that in our post-hearing brief.

COMMISSIONER KOPLAN: Finally, although I realize you are not required to submit an adjustment plan in a 421 proceeding, specifically if you would provide what does the domestic industry plan to do differently during the period of relief if the President decides to make this the first Section 421 investigation for which relief is granted?

That, of course, is assuming, because I have to combine this with my questions. I don't want to tell you I've made my mind up on the main case, but if I don't ask these now I can't get to it later with you, all right?

MR. ROSENTHAL: I understand. Certainly we'll do that. I will just say that we have already given a fair amount of information about the future plans and investments for the next couple of years.

COMMISSIONER KOPLAN: You're asking for a five year period.

MR. ROSENTHAL: Correct. Yes. We will go further in our post-conference brief or post-hearing brief about precisely how we would make use of the remaining time of the relief period. Thank you.

COMMISSIONER KOPLAN: Thank you very much. I do have a number of other questions, but I see my red light is about to come on.

Thank you, Madam Chairman.

CHAIRMAN OKUN: Commissioner Lane?

COMMISSIONER LANE: Thank you.

Listening to everybody talking about how happy they are, glad to be back here after a period of absence, I would like to say I would have liked to have been here last year, but it was beyond my control.

Let's ask a few questions about what we've got going on today. Looking at the record, the consumption of these fittings are up. Do you all believe that this trend is going to continue, that the need for the product is going to increase?

MR. WAUGAMAN: Let me try to address that because I don't have a crystal ball.

If you would have asked me this question three years ago whether the need would have continued to increase, I probably would have said I hope so, but I really am not optimistic that it would. It has continued. As interest rates stayed low, housing continues to grow, and that drives the installation of our products, as well as others.

Addressing the future, especially with an election year coming up, I would not like to try to address. In talking to our distributors, most distributors that I've talked to see the need continuing at at least the current rate through next year. They're not very optimistic about increases, but they're not saying that they see a big drop coming in the future as well.

I know that that's not a very definitive answer, but that's a tough one to judge. We believe that the market will at least stay the same as what it is and hopefully if interest rates stay low should continue to grow at least slightly.

COMMISSIONER LANE: I'm sure that the record has this, but I can't put my fingers on it right now so I will just ask. Are the bulk of these sales made to the ultimate end consumer being residential people, or are the bulk of these sales to municipalities and big item projects?

MR. TESKE: Tom Teske, East Jordan. I'll try and answer that.

The sales are through distributors, but then most of the sales right now are being driven by the development of single family homes in subdivisions where potable drinking water system lines are going in prior to the homes being built.

Those systems, those are purchased by contractors and installed according to municipal specifications, and upon approval by the municipality or township or subdivision or county or state they then become part of the U.S. infrastructure, and they're owned and operated by the cities or governing bodies. Those are the end bodies responsible for the maintenance of 90 percent of them.

MR. ROSENTHAL: Excuse me, Commissioner Lane. May I interrupt just for one second and ask your indulgence and that of the rest of the Commission?

Mr. Gerard is going to have to leave very soon. Are they any questions that anyone would like to direct to him? I apologize. I understand this is your time.

CHAIRMAN OKUN: Madam Secretary, can you just stop the time for a moment and let me just check with my colleagues?

What I'll do, Mr. Rosenthal, is just go in order of the Commissioners and see if anyone has any questions.

MR. ROSENTHAL: Thank you very much. I apologize.

CHAIRMAN OKUN: Vice Chairman Hillman?

VICE CHAIRMAN HILLMAN: Thank you. I do have just one quick question, which was to make sure I understood the timing of the negotiations of this protocol on health and safety with McWane.

If you could just help us understand? When did you begin these discussions? I take it from your testimony they have been completed, but if you can just give me a sense of the timing of this protocol and also whether you have any similar protocol in effect at the other facilities, the non McWane facilities, at which you do have USWA workers?

MR. GERARD: Because McWane has a number of facilities in which we have collective bargaining relationships, we've had health and safety programs at different phases of development with McWane.

Also because they purchase facilities from other corporations, many of those facilities that they've purchased were in need of substantial investments and improvement and modernization and so the health and safety protocol were at different levels at different facilities.

Mr. Page and I entered into a discussion about a year ago about trying to find a way to get a common approach to all of McWane's facilities in occupational health and safety. Their health and safety professionals and ours had a series of meetings, and we drafted up a very substantial protocol on training, on participation, on inspection, on a wide range of health and safety and environmental projects that regardless of the facility we would have had our common standard.

We are in the process now of putting literally hundreds of people through common training programs through a structured approach. I would think to get from where we are now to finish the training and do other things and move through that process we're probably talking about a year's work and then continuous upgrading and improvement. We have, as I said, either facilities, and we're going to train literally hundreds of people.

VICE CHAIRMAN HILLMAN: Okay. So the protocol itself you finished negotiating when?

MR. GERARD: Eleven months ago roughly.

VICE CHAIRMAN HILLMAN: Okay. So now you're at the implementing?

MR. GERARD: We're in the training and development stage. Once we've got people trained, we're going to take a group of those people and bring them to a higher level, and they will be like literally health and safety inspectors in the facilities.

VICE CHAIRMAN HILLMAN: Okay. Do you have similar protocols with any other --

MR. GERARD: Not as broad in this sector of industry. We have similar structures in tire and rubber and steel, but this industry had been a bit fragmented with a lot of separate ownership, and because McWane attempted to consolidate some of that foundry industry there was an opportunity to develop a common base, as opposed to trying to do it eight different times.

Let me just say that in case there are no other questions that I'm fascinated by the discussion because I'll just tell you what our members and leaders believe Our members and leaders believe in this industry. They're in what they call a targeted industry. I don't know that that has any legal ramifications at the ITC.

They believe that the Chinese Communists, because they have the difference of their system, price doesn't matter. They want the business. What's happening is they're undermining the pricing structure of the industry, and because they're undermining the pricing structure of the industry no matter what they produce it at it ain't going to be low enough. When that starts to happen they gain.

We have to struggle every day on the shop floor to make sure that wages, benefits, health care modernization, investments in health and safety in the environment, are part of the daily struggle, and if it's a targeted industry our members are really quite worried, and they're counting on what happens here.

CHAIRMAN OKUN: Mr. Gerard, I need to continue to see if other colleagues have questions for you.

Are you finished, Vice Chairman Hillman?

VICE CHAIRMAN HILLMAN: Thank you.

CHAIRMAN OKUN: Commissioner Miller?

COMMISSIONER MILLER: No. I appreciate your elaborating on some aspects of the agreement in response to Vice Chairman Hillman. I have no additional questions. Thank you.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madam Chairman.

I was going to ask a question similar to what Commissioner Hillman just asked, but I also have two others. The first one, Mr. Gerard. Mr. Teske touched on this in his direct testimony, but I want to hear from you as well.

Chinese Respondents argue that the Petitioner enjoys protection from import competition in certain geographic markets and refers to this as the Buy American factor. They use this as a principal argument to explain away a substantial margin of underpricing on five DIWF products during the period January 1998 through June 2003.

I'm aware of Mr. Rosenthal's argument that includes distinguishing between Buy America requirements and domestic preference specifications, but I'd like to hear from you on this issue as well.

MR. GERARD: To the best of our knowledge, we are not aware of any legal Buy American policy by any municipality. Let me say with much candor and a little bit of disappointment, even where we've tried to get one municipalities have been reluctant to do so.

COMMISSIONER KOPLAN: But I'm also interested in the impact of where there are Buy American requirements. In other words, is this a significant factor in this particular case?

MR. GERARD: No. I don't know of any specific. There may be some, but let me just say our staff are working on this on a regular basis because their livelihood depends on it.

We don't know of any municipality that has passed a legal requirement in the last three, four, five years that you by law or by municipal statute have to buy American. I do say they have, and I think that's where we may be able to add something. There are regions that have historical preferences because they may have used that stuff for the last 50 years domestically, and they want to continue using it so there's a historical preference.

We try to promote that, but it's been for our purposes and our members very minimal, and we haven't saved many jobs because of it. In fact, we've lost jobs because of the Chinese undermining the price system.

COMMISSIONER KOPLAN: Thank you for that.

MR. GERARD: Okay.

COMMISSIONER KOPLAN: The second question I had relates or goes back to the negative critical circumstances determination or finding.

Tell me in terms of the statute . What damage difficult to repair, if any, has occurred to date as a result of the Commission's negative critical circumstances vote on October 16?

My recollection is that McWane indicated at the time that they would basically continue business as usual so as not to lose skilled employees or scare off existing or potential customers. Is that what's happened since October 16? Have they continued to operate in that fashion? Can you add anything?

MR. GERARD: McWane has had difficulty at the Tyler Pipe Facility with permitting and some stuff that has caused the facility to shut down, get repermitted and come back up. Other than that --

COMMISSIONER KOPLAN: When did that occur?

MR. GERARD: Three weeks ago, a month ago. Three weeks to a month ago. It was a lapsed permit that has to be renewed.

Our day-to-day work with McWane has been one where McWane has committed with the international union and the local union reinvestment in modernization of their facilities. They've committed to working with us to do all of the health and safety regulatory work to comply and go beyond the law.

COMMISSIONER KOPLAN: So the implementation of the protocol has continued?

MR. GERARD: It's continuing as we speak. I think today people are out of the plants in training programs.

The point that I want to make is the protocol that we find with McWane goes above and beyond the law, so the first step that we have is that you've got to meet the health and safety environmental minimum standards of the law, and then in our protocol we're going beyond the law.

I guess that's why I was so emotional and took such issue with Chinese Communists that have no right taking offense with us because we're enforcing our rights and demanding that we work in clean and safe workplaces. McWane is living up to that since we signed the protocol.

COMMISSIONER KOPLAN: Thank you very much. I thank you for the answers to my questions.

MR. GERARD: Thank you.

COMMISSIONER KOPLAN: Thank you, Madam Chairman.

CHAIRMAN OKUN: Commissioner Lane, do you have anything specific for Mr. Gerard?

COMMISSIONER LANE: Yes. Mr. Gerard, is it your position that since you've entered into the protocol with McWane that you don't have any concerns about --

MR. GERARD: Absolutely not. They're a corporation. We're always watching them.

COMMISSIONER LANE: Well, let me finish. That you have no concerns about their safety standards that won't be addressed if you do see any problems?

MR. GERARD: I want to make sure I understand your question and I answer it properly.

All of these foundries are hot, dirty, dangerous places to work under the best of circumstances, so we will always, every day have a concern about health and safety.

If we implement the protocol as we've negotiated it and if we follow that protocol every day 24 hours a day, we believe that we will have one of the safest foundries in North America. That doesn't mean it's going to be a safe place to work. It's a foundry.

What we've done in the protocol is to take McWane way beyond the minimum requirements of the law. I'm also practical enough to know that when we got all of those eight operations under one umbrella to negotiate one common protocol, that isn't something -- I'll put it another way. That isn't an event. It's a process. The signing of the protocol was the event. The implementation is the process.

I believe that McWane's facilities will become safer and environmentally more clean, but we're not going to turn our back on them.

COMMISSIONER LANE: No, but my question

is --

MR. GERARD: Okay.

COMMISSIONER LANE: -- are you satisfied with the level of cooperation that you are getting from McWane to keep the protocol being met?

MR. GERARD: Now I understand. I'm satisfied, and I believe that the level of commitment at the top of the corporation exists.

I'm going to be very candid. I think that there's a communications difficulty in the McWane structure because they've had these independent business units and that not every business unit is responding to the protocol as Rufner Page and I thought they would, but overall, as I said, it's a process, and I believe the commitment by the corporation at its senior leadership level is committed to doing it.

I know that we've had ongoing discussions. I know that Mr. Page has had meetings with his senior people, and I believe that their commitment, our commitment, the work at the plant level will get us there.

It's a slow process, but I believe that they're committed to getting us there, and if they're not we'll just have other difficulties to deal with.

CHAIRMAN OKUN: Commissioner Pearson?

COMMISSIONER PEARSON: Mr. Gerard, I have no questions. I appreciate very much your presentation. I think my colleagues have done a good job covering the waterfront.

MR. GERARD: Thank you. Thank you very much.

CHAIRMAN OKUN: Mr. Gerard, I have no questions. The issue about the protocol has been thoroughly covered. I appreciate that. You are free to leave.

We will turn to Commissioner Lane's questioning now.

MR. ROSENTHAL: Thank you very much for your indulgence. Appreciate it.

COMMISSIONER LANE: Let's go back the safety and environmental concerns that have been raised about McWane apparently in a New York Times article.

Has McWane responded on the record responding to that article, or would you like to comment on the record today as to the accuracy of the record, or is there anything else that we need to know about that story?

MR. ROSENTHAL: Commissioner Lane, I responded somewhat to the New York Times article. As I mentioned, the McWane decision early on was not to pick a fight with an entity that buys ink by the barrel full.

I have a tremendous amount of information, as do others at McWane, that we brought point by point many of the allegations in the New York Times article, and I don't believe that the company has gone on the record with much of this.

Part of the frustration was that they gave a lot of this information to the New York Times before the Times even printed its article and it was ignored, so they're somewhat leery, shall we say, about trying to fight this out in the press.

COMMISSIONER LANE: Would it be appropriate for you to provide in post-hearing a summary of McWane's response to that article?

MR. ROSENTHAL: Yes. We'd be glad to. Thank you.

COMMISSIONER LANE: Okay. Thank you.

MR. GREEN: Commissioner Lane, let me just say that Paul may not want to say this, but a lot of the folks that were in a management position at the time that led up to the problems that were way before the article was actually done, through discussions between the company and Union, a lot of that management is no longer here.

That management wasn't listening very well to workers and workers' concerns. To McWane's credit, they got rid of most of them.

COMMISSIONER LANE: Okay. Thank you.

MR. GREEN: I would just like to add as far as Tyler Pipe is concerned, which there's two points I'd like to make.

One, McWane operates more than 20 to 25 plants. I won't give the specific number for confidentiality. The brunt of the assault, as I've characterized it, from the New York Times article was mainly focused on four facilities. I believe concrete steps were put in place years ago prior to the article to take care of the issues.

I am particularly familiar with Tyler Pipe because back prior to 2001 I was in the valve and hydrant business running a facility safely and exactly what Leo would like or we would like or the community would like. I was asked to go take responsibility for Ransom Industries and Tyler Pipe and actually relocate to the Tyler Pipe facility to start implementing the changes that I knew needed to be or as I saw fit needed to be put in place at Tyler Pipe. That was February of 2001.

I think our record from that point in time, knowing the specifics and getting into the detail of the instant rates, et cetera, have decreased in excess of 30 to 35 percent annually since that year, and the performance of that facility has improved considerably.

Even some of the current issues that were brought up, the South plant permit issues, are a result of trying to clean up old permits that were initiated by our predecessor, Tyler Corporation, Tyler Pipe Industries, who we bought the facility in 1995, permits that were issued back in the early 1980s trying to clean up all of that old history.

I have personally taken the rug at Tyler Pipe and shook it trying to clean up everything that I possibly can, and that has been my career with McWane since 1993. I'm trying to just provide a summary, an overview from where I sit.

COMMISSIONER LANE: Consistent with that, can you provide in post-hearing the information or the statistics of showing how the safety record has improved since February of 2001?

MR. GREEN: Yes.

COMMISSIONER LANE: Okay. Thank you.

CHAIRMAN OKUN: Commissioner Pearson?

COMMISSIONER PEARSON: Thank you, Madam Chairman.

A question first for Mr. Kerwin. You displayed earlier Figures 4 and 5. There were no units on the vertical axis. Why?

MR. KERWIN: Figure 4 is an indexed accounting of the proprietary data that was contained within the staff report. We have specifically not labeled the axis due to concerns of giving away proprietary information.

The same is true of Figure 5, which contains the same information on production from 2000 forward through 2003, so in the interest of not disclosing any proprietary information there's no label to the scale because those are indexed figures starting from a level of 100.

COMMISSIONER PEARSON: Yes. Okay. So there's no proprietary information disclosed, but as a practical matter is there any information disclosed when there's no knowledge of the axis, what's on the axis? I mean, is there anything useful about these figures?

MR. KERWIN: I believe so. It shows the trend over time, yes.

MR. ROSENTHAL: What you're looking at, Commissioner Pearson, is trends, and the Respondents' argument is that the imports, both their volumes and the prices, have had no adverse effect on the domestic industry.

What we're trying to show over time is at least the trend in production, if not the absolute numbers in Figure 4, and the comparison of the trend in imports compared to the trend in U.S. production in Figure 5.

You're absolutely right. Without absolute numbers these charts are less helpful than they otherwise might be, but again the point was to at least be able in a public forum to rebut the charge that there's no nexus between imports and production.

You've got the actual data in your record to decide whether our figures distort or actually properly reflect what's going on.

COMMISSIONER PEARSON: I have some questions about non-subject imports. The global markets that I'm more familiar with tend to be very flexible, a lot of moving of product, substitution from one country to another based on changes in supply and demand, a very fluid marketplace.

Is that also the case for ductile iron waterworks fittings, or is there more rigidity in the international marketplace?

MR. WAUGAMAN: Mike has more of the figures that are confidential and proprietary that I may not have on other Respondents from non-countries if that's the right term, from other countries from China.

Historically I think from what we've seen in the market there has always been the majority of the product that has come in has been Chinese product. It's marked on the product, and you can tell where it comes from.

MR. KERWIN: I would just add that obviously the Chinese are the driving force behind pricing in the marketplace. They are and have been the number one source country for this product, definitely have the broadest product line of offerings, I believe the largest number of producers, and they have really been in the driver's seat in this market in terms of driving of pricing, as well as the leaps and bounds they've made in market share.

It is our belief that if the remedy that we have requested is put into place and Chinese imports begin to reflect more realistic pricing in the marketplace that the non-subject source countries will likely follow their lead.

COMMISSIONER PEARSON: Could I inquire from the panel? Do you have direct knowledge of pricing differences between Chinese product and imports from other countries?

That was the statement, as I understood it, from Mr. Kerwin. I'm just wondering. Is that a statement that can be corroborated by the panel?

MR. ROSENTHAL: Commissioner Pearson, just to help you on this or help us on this, the information in the record does provide information on non-subject imports' average unit values compared to the prices from China, and that was what was referenced by Mr. Kerwin earlier.

If you're asking for specific marketplace prices --

COMMISSIONER PEARSON: We have people on the panel who have quite a bit of experience in the marketplace, so I thought there might be some general knowledge that it's much harder to compete against products from China than from some other origin.

MR. ROSENTHAL: I didn't understand you to be asking that question. I thought you were asking about specific prices from the other countries. That's why I wanted to clarify if you're asking for average prices or --

COMMISSIONER PEARSON: No. There was the price leadership assertion, and I just don't have a sense of the marketplace. Those of you who do, give me a better sense for it, please.

MR. BLAIR: I'm Joel Blair. As far as we can determine, there is no differentiation between product brought in from China or from India in the pricing in the marketplace from the importers.

MR. WAUGAMAN: Let me also address that. This is Don Waugaman.

There are also other countries of importation -- Brazil, Mexico, Korea. In addressing it broadly to say I think Joel addressed that there may not be any pricing differentiation between India and between China.

A lot of times until the product comes here we don't know what an importer is selling, whether it be Chinese or Indian product. Different people have sold Mexican and Brazilian product. From my understanding of the market and the market pricing, the competition on those products has not been near as severe as the products coming from China.

COMMISSIONER PEARSON: Okay. Table 2.1 of the staff report, some of you have it, contains confidential business information, but it does compare imports from China and other sources.

As I review those data, it appears to me that imports from other origins constitute a substantial percentage of all imports. Can you comment on whether you think there's the potential for further growth in non-subject imports?

MR. KERWIN: There certainly is a potential for further growth in non-subject imports. Our belief is that the single country of China obviously -- in my testimony I addressed in 2003 the single source country accounted for approximately two-thirds of all imports of this product within 2003. That's one country.

The numbers in the staff report are the aggregate of all other countries, including all the source countries that Waugaman just listed. Clearly, to have a single source that accounts for two-thirds of the imports, and I believe I also said in my testimony that China had four times as much volume as the next largest country during this period.

So when you're comparing individual players and what they're likely to do, individual source countries and what they're likely to do further down the road, I think you have to start from that initial understanding of just how important the Chinese imports are, the kind of market share they have, the broad product line that they offer, the broad acceptance of the product in the U.S. marketplace and then compare back to the individual source countries that the product is also sourced from. They're relatively small in comparison individually.

COMMISSIONER PEARSON: Yes. I would concur that China appears to be the largest single player in the import market.

I think I'll hold my further questions for the next round.

CHAIRMAN OKUN: Thank you for an interesting response.

I want to go back to price. I wondered, Mr. Teske, if you could add anything to Commissioner Pearson's question about how you see other non-subject imports in the marketplace in terms of the competition or the prices, quantity.

Now, I should make sure. You just handle U.S. product?

MR. TESKE: Right, so I'm probably not the best person to answer that question.

CHAIRMAN OKUN: You don't see it directly because you're handling --

MR. TESKE: Right. I only know that if we're competing with a domestic product against someone who's selling an imported product there's normally a price differentiation, which is hard for us to be successful in the sale, you know, unless we have some preference towards our product.

CHAIRMAN OKUN: When you say competing against imported product, do you often know that it's Chinese, or do you --

MR. TESKE: No. We really -- right. I mean, correct.

CHAIRMAN OKUN: Okay. Then if I could go back on the comment regarding what the AUVs about non-
subjects may or may not tell us.

I wanted to ask a more general question I guess to you, Mr. Kerwin, and you, Mr. Rosenthal, on AUVs because one of the arguments raised by Respondents is that if you look beyond the pricing products that you would find the pricing, and they used the AUVs I think generally, as I understood their chart, to make this argument.

I wanted to get your response to it, but I guess first the response would be how useful are AUVs in this type of product category when we have this very large spread? I guess that is my first question.

MR. KERWIN: I'd be happy to answer that and take a crack at it.

I think the average unit values in terms of pricing comparisons are largely useless. Obviously an average unit value can show a trend over time, but to the extent that the mix of the products changes over that time, that may be misleading.

The Respondents cite to the data from the staff report that show the volume and value and average unit value of products by size. Well, the problem is that the division is made between above and below 30 inch.

As we've heard from some of the witnesses this morning, the amount of volume in the above 30 inch category is so small as to be almost insignificant, which means that the below 30 inch category is essentially the whole product range and almost the entire -- certainly the lion's share of the volume of the product overall, so even within that below 30 inch range you're seeing literally hundreds of products within that range, and obviously the product mix can change over time.

One of the things that the Respondents were adamant about early on in this case is that it was critical that the Commission change its questionnaires that it was sending out to both the industry and to the importers to develop full information on this issue of above and below 30 inch diameter product.

I think that the record has come to show that that has essentially been a waste of the Commission's time because there is such a small element of the market that is actually in this above 30 inch category, and it is the Respondents themselves that made the claim that their product was more heavily weighted towards larger diameter product.

To the extent that the Chinese product reflects larger diameters, which typically sell at higher prices per ton than smaller diameter fittings, of course that would have an effect of pulling up the average unit value for the group overall.

CHAIRMAN OKUN: Okay. Mr. Rosenthal, did you want to add something to that?

MR. ROSENTHAL: Recognizing the limitations that Mr. Kerwin has described and as you recognize, even then for what they're worth if you look at the unit value chart you can still see that the Chinese are below on average all the other import sources, and their trend is trending downward in a steeper way than the other import sources.

I want to clarify to both Commissioner Okun and Commissioner Pearson. It is not that we're unconcerned about imports from other sources. We are. I will take issue with Mr. Blair, my own witness, but my understanding from what I've heard elsewhere in the industry is that the Chinese are traditionally below everybody, including India, and that the other countries' imports are essentially chasing the Chinese to the bottom.

That's not to say we're not concerned about India and these other countries, but that the Chinese are the, if you will, worst offender in the marketplace from the point of view of domestic producers. I'll also say that we are looking at other remedies.

CHAIRMAN OKUN: I guess I really just had the fundamental question whether the AUVs are useful or not, I mean, to look at, and then I did have the same view of looking at them. I'm not sure that it showed anything other than maybe that they were small percentages. Anyway, I understand your answer on that.

With regard to the non-subjects, perhaps in post-hearing you can find another distributor or others who could comment more directly on them. I do think it is useful to hear from the industry on where they see the competition and whether they sense it being Chinese or not in this particular type of case, so anything else you can add on that I think would be useful.

Mr. Murray, you had stated either in your testimony or in response to a question, you talked a little bit about price increases that you had attempted, but that I think you had said had not stuck.

I know there is information in the record regarding those, but I did want to make sure that I understood from the industry representative the timing of those attempted price increases, what we know about the most recent price increases, whether they've stuck or not and when you would get a sense of that.

I'd like to hear from you too, Mr. Green, but Mr. Murray?

MR. MURRAY: Ms. Okun, we have in fact -- we are in the process of analyzing the most recent price increase, which was in August of this year.

I'm in the same sort of position in trying to make sense of whether or not the price increases have indeed held or if indeed have taken hold because of the complexity of the marketplace in general with all of the distinct geographical areas that have different prices with the myriad products that are sold, considering the weight per unit of each of those products.

It's quite difficult and so it's a little early to tell, but if an opinion matters for anything I don't believe that. I'll believe it when I see it. I'll put it that way.

CHAIRMAN OKUN: And then just for my sake, because I don't have it in front of me, were there any other attempts of price increases during the period we looked at?

MR. MURRAY: Yes. Yes, there were.

CHAIRMAN OKUN: And did those hold? What was the timing of those?

MR. MURRAY: Not necessarily. I wish I could be more conclusive than that, but as I was stating here earlier I was looking at the graphs which covered the period of investigation, and it's hard to make any sense or rationale so I can't really give you an answer.

CHAIRMAN OKUN: When was the timing of the other ones that would have --

MR. MURRAY: There was an earlier one earlier this year in March, I believe.

CHAIRMAN OKUN: Okay.

MR. MURRAY: I'm unsure about the earlier process.

CHAIRMAN OKUN: I think some of this may have been in the record, but just in terms of post-
hearing I want to clear that up.

Mr. Green?

MR. GREEN: I'd like to take a first stab at it from more of an operational background, and I'll let Don fill in the gaps that I may leave.

I think it's important that the Commission understands or that we communicate clearly that there are several different types of price increases. We've already talked that we've pretty much -- us and the importers are working off the same list price, which happens to be the Tyler or Union list price, which we are the predominant manufacturer and player in the DIWF market.

We have attempted and in some cases been successful over the period of investigation with list price increases, say a five percent list price increase to the market.

Now, having said that, and we've already provided in testimony that in different regions mainly by different states there are different multipliers that apply. While you may be raising the ceiling, you find that to stay competitive you have a lowering in particular states your multiplier, your discount multiplier.

In essence, what I have to look at as a manager and I think as an analyst what is the trend of our annual average national price level for all of our utility fittings. There is a definitive trend.

The only way that we've been able to slow down the growth of imports is by aggressive price reductions, and we have had -- you know, in particular, the trend is definite over the period of investigation, about a reduction of $100 to $150 a ton on our product across the board as an average as it's reported in our financial books, so the overall trend is definitely declining. I think we have some other documentation that we've provided in our responses that spell that out of what that trend is.

There was one year in 2001 where there was intense -- when I was first at Tyler and my focus was mainly on the operations and addressing the concerns that I previously discussed where there was a price increase in that period of time for that year. When that price increase happened in that year, the import market share increased from 11 percent to 17 percent. I have those numbers. They increased.

CHAIRMAN OKUN: I'll give you a chance when I come back.

MR. GREEN: I'm sorry. I can say it right now. The percent, and not to delay any further, go from 11.4 percent of the market share to 16 percent of the market share, so it has been -- the overall pricing has definitely been declining over the period of investigation.

CHAIRMAN OKUN: Okay. I see my red light has come on. I do have some followup questions with regard to a couple things you said, but I'll come back to that.

Vice Chairman Hillman?

VICE CHAIRMAN HILLMAN: Thank you. I guess having now listened to and sort of trying to follow this whole discussion about average unit values, subject imports, non-subject imports, does cause me to look at this data and to ask either you, Mr. Kerwin, or you, Mr. Rosenthal, or potentially even in a post-
hearing brief to help me understand what I think are pretty significant differences between the data as reported based on imports directly as opposed to shipments of imports.

The import data, you know, would be that which you would see in Table 2.1, as opposed to the shipments of import data that are detailed in Appendix D. They would show a very different situation in terms of the average unit values of subject product, non-subject product and domestic product than what is laid out in terms of subject/non-subject in Table 2 and what would be reflected in the pricing data.

If you can help me understand why we would see such significant differences between data as reported on the import basis versus data reported on shipments of imports? We obviously always see some differences that are temporal in nature, but why such a different pattern in terms of AUVs?

MR. KERWIN: Well, the critical fact in relation to the Chinese imports is that the unit values at which these products are entering the United States being sold by the Chinese producers are incredibly low, and the markup on this product that the importer takes, and admittedly you have some costs associated with getting the product to where it is ultimately sold to a distributor, but the markup on this product is obviously great.

It's very attractive to the importers, and it's just that disparity between the entered value of the product and the selling price of the product that we believe justifies our request for such a high tariff in our remedy to be placed on the Chinese imports that are coming in at these very low values.

VICE CHAIRMAN HILLMAN: Then help me understand why the same wouldn't be true for non-
subject imports. In other words, if I look at one set of data, I have Chinese imports the lowest and then non-subject imports.

If I look at the data on the basis of shipments of imports they're reversed, which means people are not doing the same kind of markup for non-
subject products. Why?

MR. KERWIN: I think that's accurate that the product is not being sold by the foreign producers at such incredibly low levels as that coming out of China.

I don't want to go too far in discussing the non-subject imports because I believe essentially all those numbers are proprietary at this point, but it's clear that the product that is being shipped from China is being sold at the lowest average unit values and the lowest selling prices coming into the United States of any source country.

VICE CHAIRMAN HILLMAN: Okay.

MR. KERWIN: This is an extremely cheap product, and it's extremely attractive to the importers because they can enjoy such a high markup on this product.

VICE CHAIRMAN HILLMAN: And as a general matter, would you tell us that we should be looking at the import data or the shipments of imports?

MR. KERWIN: I think the average unit values, as I said before, are of limited importance in coming to the question, for example, in dealing with the question, for example, of underselling.

VICE CHAIRMAN HILLMAN: How about on the volume side? Again, there is a difference if you look at imports, as opposed to shipments of imports.

MR. KERWIN: Well, the Commission staff calculated market share on the basis of the shipments of the imported product. Obviously there's two ways. We've seen that done different ways in different cases.

You know, sometimes the Commission does not have a full accounting of what exactly has been shipped. Therefore, they will rely on the import numbers for purposes of establishing apparent domestic consumption.

I think in this case you have a relatively complete record, and the calculation of market share could be done either way. I think the most salient indicator of the effect of the product in the marketplace is the market share as it has been calculated on the basis of shipments.

VICE CHAIRMAN HILLMAN: Okay. Okay. Some of your answer also goes to a question I had in terms of the remedy.

Mr. Rosenthal, obviously you have based your calculation of what you think is an appropriate tariff level on the declared Customs value, not on our pricing data or on our underselling, I presume to some extent for the reasons that Mr. Kerwin has just outlined in terms of why and how these differences occurred.

I would like, if you know it now or if you want to add it in a post-hearing brief, for any precedent in prior Commission remedy recommendations to look at declared Customs values as opposed to pricing or other data on the record. Why should I go to that? I mean, you're obviously picking the lowest number we've got or, if you will, the largest margin number.

Why, if that's not what the product is being sold at in the market, if there is a big markup occurring, why is that a good number to base any kind of a tariff on?

MR. ROSENTHAL: As you mentioned, Vice Chairman Hillman, I'm not aware of the Commission ever expressing the basis for why it picked a particular tariff level based on margins of -- I shouldn't say that.

There may have been statements that based on margins of underselling and some Commissioners' opinions, but, to my knowledge, there is not an understanding or a practice that says that a tariff recommendation, for example, ought to be designed solely or mainly to reduce the margins of underselling. That's point number one. I don't think there's a precedent or a necessity to base your recommendation on that.

As a practical matter in this industry, because of the wide gap between selling prices in the marketplace and the entered value and the great ability by importers to essentially reduce their profits and absorb the tariffs, that's why we recommended a tariff as high as we did, as you recognized.

We will come back to you with a little more elaboration of this, but I will also reiterate that what you're trying to do here is to come up with an effective remedy, and, if I may, and again through no fault of this Commission -- I know you're always struggling to do something worthwhile, and I recognize with six Commissioners it's difficult to always come to a consensus on what is worthwhile.

As someone who has gone through these cases and cases involving the administration and many going back for more than 20 years, what often happens is a negotiation process. What often happens is a watering down of the recommended relief by the Commission. I'm being practical here.

The idea is let's do something for the industry, but let's not do anything too painful from the importers' point of view. My fervent hope is that if you're going to come up with a recommendation here that is done in a way that has the objective and the result of providing relief that will allow the investment on our side that's made to do better in terms of cost reduction.

Commissioner Koplan's questions on remedy I think I understood, you know, that you get five years if you get this tariff. What are you going to do with it? How is that going to actually help you do this? I understand why you're asking that.

I think it's appropriate, although, as I said earlier too, that you also ought to be asking what are the Chinese going to be doing in terms of currency and the other things to be more market oriented.

VICE CHAIRMAN HILLMAN: Mr. Rosenthal, that red light has been on for quite some time now.

MR. ROSENTHAL: Sorry. I urge you to come up with something that is going to be effective.

VICE CHAIRMAN HILLMAN: Okay. Thank you.

CHAIRMAN OKUN: Commissioner Miller?

COMMISSIONER MILLER: Mr. Rosenthal, had you finished your answer? Was there any more to add? It sounded like you had more or less, even though I know you'll add something more in the post-hearing submission.

MR. ROSENTHAL: Thank you. I will stop.

COMMISSIONER MILLER: Okay. I say that because I don't believe I have any further questions. I was interested in the AUV questions that Chairman Okun has already asked, so I appreciate your answer there.

I may have some questions with regard to the financials, but since we're having an in camera session I'm going to hold those for that point in time because I think, given the confidential nature of the financials, I think that's where I'd like to have the ability to ask something that isn't just for a post-
hearing brief.

With that, I have no further questions. I appreciate all of the answers that I've heard today to all of my colleagues' questions as well. Thank you.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madam Chairman.

I won't start with you this time, Mr. Rosenthal.

Mr. Green, you heard me ask Mr. Gerard about what's occurred since October 16 when we voted on critical circumstances, and you heard his answer. Do you have anything to add to that?

If I can refresh you, I stated to him that my recollection was that McWane indicated at the time that you would basically continue business as usual so as not to lose skilled employees or scare off potential existing or potential customers, and I asked him was that, from his standpoint, what had happened.

From what he said, since mid October the protocol has continued, and it has been for your employees business as usual. Is that correct?

MR. GREEN: That's correct. We can't afford to lose those workers.

COMMISSIONER KOPLAN: Okay. Thank you for that. I just wanted to give you the opportunity to add to that if you wanted to.

This has been touched on already, but I'd like to raise this. I'd like the industry witnesses to respond to an argument made by Pipeline Components, Inc. at page 9 of their prehearing brief that the domestic manufacturers consider subject product to be a secondary product in this country, merely used to compliment your sales of ductile iron pipe and other waterworks. In other words, that's how the domestic industry uses this product.

PCI argues that it's common knowledge in the industry that ductile iron pipe is a major, if not the major, component of each company's product line, and each company sells a full menu of water distribution components. That's at page 15.

I believe you did touch on this in your direct presentation. If you have anything you want to add to it, that's fine. If not, I do acknowledge that you did get into this. I just wanted to follow up again, though.

MR. GREEN: I believe I've already addressed it adequately.

COMMISSIONER KOPLAN: Okay. Thank you. Appreciate that.

MR. WAUGAMAN: Excuse me, Commissioner. I would like to add something --

COMMISSIONER KOPLAN: Sure, Mr. Waugaman.

MR. WAUGAMAN: -- more, and this is Don Waugaman, to what Mr. Green had said from a marketing perspective.

Never, to my knowledge, has our company ever gone to a distributor and said we are or not going to sell you fittings if you do or do not buy ductile iron pipe or valve and hydrants from other McWane divisions.

I don't believe that's ever happened, and I have never heard in the field of any of the other McWane divisions going and saying I'm not going to sell you valve and hydrants or not sell you pipe at a different price unless you buy fittings. I've never heard that done in the industry, and I think that absolutely never occurred.

COMMISSIONER KOPLAN: Thank you for that, Mr. Waugaman.

Yes? I see another hand. Mr. Teske?

MR. TESKE: Yes. Thomas Teske. I just wanted to add to that. I mean, we are a Griffin Pipe distributor. That's a competitive pipe to their sister pipe company, and we do manufacture fire hydrants and valves which are competitive to their sister company. We've never been asked.

COMMISSIONER KOPLAN: Thank you.

MR. GREEN: If I could add a comment? I remember, you know, back coming out of my retraining and MBA program after eight years in the commercial construction business in this area when I first got into McWane and the sales aspect I remember calling up the sales manager for ductile pipe when I was making valves and hydrants and saying, you know, what are your thoughts on valves and hydrants.

He basically told me not politely, but for the record I'll say politely. He said the heck with a bunch of valves and hydrants. That still resonates in my head.

COMMISSIONER KOPLAN: All right. Thank you. Does that complete the industry's response to that question?

MR. MURRAY: I'd just like to ask why PCI felt motivated to make that statement? I mean, really for U.S. Pipe to frame a response I'm curious as to why PCI would say that that's not an important product or a primary product of our company. On what basis would they make that claim?

COMMISSIONER KOPLAN: I don't speak for them, Mr. Murray. I'll be seeing them this afternoon.

MR. MURRAY: Very good. You might ask them.

COMMISSIONER KOPLAN: Let's see if I can get through one more.

If I can come back to the non-subject countries for a moment? I know there's been a lot of discussion on that, but I'd like to come back to the impact of sales of this product from non-subject countries on your financial performance over the period of examination.

Those in opposition argue that your capacity utilization cannot properly be evaluated without our taking into account the extent to which domestic manufacturers have incorporated this product from third countries, as well as China, into their marketing strategies. That's at page 11 of their prehearing brief.

I see my red light has come on. I'll let you respond to that in my next round.

Thank you, Madam Chairman.

CHAIRMAN OKUN: Commissioner Lane?

COMMISSIONER LANE: The disparity between the prices of the domestic industry and the foreign imports. Is that disparity followed through, or is it reflected in the ultimate sales to the end user, the consumer public? I hope I've made myself clear.

MR. WAUGAMAN: Yes, and maybe I'll let Mr. Teske, our distributor, follow through with that.

We sell, as I said in my testimony, at a price that we believe we need to be competitive when we sell our distributors so that they can resell our product into a marketplace and not either lose business to another distributor selling import products or they as a distributor decide to buy import products instead of ours.

We have to sell at a competitive nature to that distributor. The distributor then marks up that product and resells it to end users. What you're asking is the reflection of our selling price reflected. If ours is decreased, is that then decreased to the end user? We don't have any control of that.

Maybe Mr. Teske can address that further.

MR. TESKE: Thomas Teske. I'm not sure there's a complete correct answer to that question.

The lower price is used to the degree that it helps someone achieve the overall package, you know, to be a successful low bidder. It may be reflected, or it may help them improve their overall margin. It all depends how one chooses to balance the bid.

COMMISSIONER LANE: Okay. Maybe my question really is if a big developer is building a subdivision and if he chooses to buy McWane products and the guy down the road is building another subdivision and he decides to buy foreign fittings, what is the end result between those two subdivisions to the ultimate consumer?

I mean, is the ultimate consumer going to notice much difference whether or not it's a McWane or a foreign fitting?

MR. TESKE: Well, these products are buried so, you know, once they're installed you really don't know.

COMMISSIONER LANE: No. I mean price-wise.

MR. TESKE: That depends on the developer's decision of how they price the products that they sell, how they incorporate or build their cost structure.

COMMISSIONER LANE: Well, what I'm asking is from a practical standpoint what have you all seen? Does the disparity in prices actually -- I mean, is the ultimate consumer getting a better deal from those projects that use cheaper priced foreign goods?

MR. WAUGAMAN: I can address that from what we've seen in the market, Commissioner, and that is that my belief is that that consumer is paying pretty close to the same amount -- maybe not exactly, but pretty close to the same amount -- for a product no matter whether it's our product or an imported product.

We try to sell our products to our distributors where they in fact can be competitive, but my belief is that when it comes to the end use buyer when he's buying from a distributor he's probably paying pretty close to the same price for that end use product.

We have had end use product quotes, which our distributors have brought to us quotes from a similar distributor supply imported Chinese product, and we've had to adjust our pricing where that price of our product can be similar to that price in the marketplace.

I really don't believe there is much difference, if any at all, between what the ultimate consumer is paying.

MR. GREEN: I would like to add that relative to the scale of a subdivision the fittings are a small part of the subdivision. Of course, that's a driving factor for consumption, but it's a small part in the overall cost of the subdivision.

It's our belief that whatever low cost that the importer obtains from importing product, basically it allows him to have a better margin and allows the contractor to have a lesser degree of a better margin in his back pocket.

The ultimate consumer I don't believe benefits from or would notice any difference whether it's an import other than our belief performance-wise maybe, but would see the savings in their back pocket.

COMMISSIONER LANE: Okay. Thank you.

Now, the next question I have is what has happened to the McWane facility since August of this year as far as production, employees, hours worked and wages paid? Have those been affected since all this?

(Pause.)

MR. ROSENTHAL: I was just cautioning Mr. Green not to discuss any proprietary data, but I think there is some public information certainly on the slow downs at the Union facility since August.

You're looking for information past what you've got for the first half of the year?

COMMISSIONER LANE: Yes. Yes. I don't want to violate any confidential information.

MR. GREEN: I think I've already announced in my opening presentation what the labor situation was at Union Foundry and what reductions were at what period of time.

Sitting here right now, I don't remember what month the last round of reductions were at Union. It was around that August timeframe, but I think your question dealt with since August.

The only thing that's happened that has been unfortunate is this situation in the South plant of the Tyler Pipe facility to where we're currently not operating as we work with the regulators, the state regulators, to clean up old permitting issues.

The pay rates are governed by collective bargaining agreements that are in effect, so there's been no real change other than trying to minimize to get a standard work week and not run overtime.

COMMISSIONER LANE: So are you running as many shifts now as you were in August? You're not allowed to answer that?

MR. ROSENTHAL: I think Mr. Green is getting -- I'm trying to tell him you're looking from the end of the first half of the year, and we're getting hung up on does that mean August is the beginning or the end point?

COMMISSIONER LANE: Okay.

MR. ROSENTHAL: Since the end of July? Is that what you're asking for?

COMMISSIONER LANE: Yes.

MR. ROSENTHAL: Okay.

MR. GREEN: The end of the June is the half of the year under investigation.

MR. ROSENTHAL: I'm sorry. Even better

MR. GREEN: Since that time, in my testimony we did have to idle the GFD molding line, and that was a layoff of approximately 185 people associated with that facility. That is a matter of record that we've presented, so just to clarify that I guess.

COMMISSIONER LANE: Okay. Thank you.

CHAIRMAN OKUN: Commissioner Pearson?

COMMISSIONER PEARSON: Mr. Rosenthal, you'll appreciate that this is my first 421 case. I'm trying to sort out and make sense of it.

You know far more about the statute and its potential application than I do, so help me out on this one if you could.

COMMISSIONER KOPLAN: This is my first one too.

COMMISSIONER PEARSON: Okay. Well, we'll learn it together.

Let's assume that injury is found, and then the Commission will have responsibility to determine a remedy. You have earlier urged us to try to come up with an effective remedy.

Is there any way to devise an effective remedy? Is there any way to devise a remedy in this case that won't have the effect of encouraging increased non-subject imports?

MR. ROSENTHAL: A fair question, and certainly Respondents would argue don't bother because if you do anything with respect to China then you're going to have imports from India and other sources. I understand that argument, and I understand the concern.

If the answer is nothing you can do will help the industry you might be frustrated, and so would we, but I think the answer is yes, you can do something to deal with China which would not be undermined severely by non-subject imports.

First, China is really the price leader. If the Chinese prices rise, I believe that the imports from other countries will also increase their prices, so it will have a beneficial impact on the industry if you get Chinese prices to increase.

Secondly, to respond to your question earlier, this is not, if you will, grain or some other agricultural commodities which I know you're familiar with where there are many, many sources. Yes, there are other import sources. India has been mentioned, Brazil and China have been mentioned, but all these sources have to be able to, number one, meet the AWWA specs, which is a limitation. There are a limited number of non-subject import sources that can come into the market and undermine the relief.

Third, I would say that while Mr. Loeb would prefer that the industry deal with the non-subject imports through a 201 case or would have preferred that we dealt with the imports from China in an antidumping case, I think I heard him concede material injury and causation before. I'm just kidding. He may have a different view on that.

As a practical matter, I don't think you as a Commission have to decide that you are solving all of the industry's problems if you deal with the issue of China. If the result of an effective remedy on China or a remedy on China is that the imports from India increase, then the industry has the option to come in if it can prove dumping and injury as a result of increased imports from India to bring a case of that sort.

I believe that that is not something that you have to anticipate or calculate in devising your remedy. If you fix, if you will, or attempt to fix the China problem, a large portion of the problem that the industry faces will be resolved. It would solve everything.

I want to be very, very clear about this. We made it clear in the staff conference. I want to make it clear now. China is by far the most significant problem that the industry has faced. I'm not going to say that imports from other countries are not a problem, but they are nowhere close to the problem that the imports from China have been.

That may change. If China recedes, imports from India may come up, but I don't think they will come up as aggressively, as rapidly as the imports from China have because that has not been the history to this point, and I believe that even if the volumes increase the prices won't be at the levels of the Chinese prices.

COMMISSIONER PEARSON: Okay. I have observed over time unintended consequences of government actions in marketplaces, so let me ask about two possible ones here.

First, if Chinese imports are no longer in the marketplace is it plausible that imports from other countries would come in at a higher value, thus giving higher earnings to the manufacturers in the other countries?

MR. ROSENTHAL: I want to make sure I understand the question. That imports from India, for example --

COMMISSIONER PEARSON: Yes.

MR. ROSENTHAL: -- might come in at a higher value or a higher price than they are coming in now and, therefore, increase the returns of the Indian producers?

COMMISSIONER PEARSON: Yes.

MR. ROSENTHAL: I think that's not only possible. I think that's likely. That would not be a bad consequence from the point of view of this industry because we don't have any problem with other producers making money on their products as long as we can as well.

Part of the problem you have here is that the prices are so low that the domestic industry cannot make money on its product, but if others priced more realistically I don't think there's a -- it's a consequence that we would have terrible problems with.

COMMISSIONER PEARSON: Okay. So in that situation if we have five years of relief, for instance, and all of a sudden you are a manufacturer of ductile iron waterworks fittings in a country that's not subject to any import limitation, you're making more money because you're selling at a higher price into the United States.

Why don't you reinvest in your facility if you think you can recoup that investment within five years and try to claim all the market share in the United States that the Chinese are giving up?

MR. ROSENTHAL: That is certainly one possibility, but another possibility is that you may actually pay your workers more money and spend more money on environmental and safety issues as well.

The other prospect, or while they are getting more money the domestic industry is also being able to invest, become more competitive and be able to deal better with its foreign competition going down the road.

Honestly, clearly fair questions, but I would flip it around, as I want to do, and say the alternative is that if you don't take the action to put an effective remedy in place this industry won't be around to know whether it can compete against imports from a stronger Indian competitor five years from now.

I understand the possibility of these consequences, but I know and I believe that there is a much greater possibility, and I would say put it in the probability category, that the people sitting around this table will not be here in five years to test whether that consequence has come to pass.

COMMISSIONER PEARSON: Mr. Green?

MR. GREEN: If I could add real briefly? All we're appealing for or petitioning for is so that we can make a reasonable rate of return and to be able to continue our capital investment plan that we've been maintaining for many, many years. That's all we're asking for.

I don't think that we're going to have this plethora of profits flowing in the door that we can just harvest and have a cash cow. It's going to be still a demanding industry, but we're asking that we can get with a reasonable profit.

I don't know that we're going to drive -- we're not proposing to drive the Chinese imports out of the market. We're just asking to be on a level playing field.

COMMISSIONER PEARSON: I could clarify that. Too much of my career was spent working for businesses that were not doing well financially. Although that's a very interesting experience, I certainly don't wish it on anyone. I want you to understand that I have some appreciation for financial hardship.

In this particular case, just going back to the point, I mean, don't we run the risk of imposing a remedy that inadvertently leads several years down the road, perhaps even within one year down the road, to a much stronger, more robust competition from non-
subject countries?

I mean, do we run the risk of taking a short term step seeking relief that just makes life all the less tenable and livable in the long term?

MR. ROSENTHAL: The answer is yes, but unless you take that risk, and it is a risk, there is an absolute certainty that there will be no long term

for this industry, and yet this is my first 421 case, but it's not my first import relief case here by a long stretch.

I'll tell you that every one of the cases that comes before this Commission, whether it's a 201 case or a Title VII case, has that implicit risk in it because every case that comes before the Commission the Petitioners are asking for prices to increase so they can make more of a profit to invest or survive, you name it.

Every one of those instances in which the price increases in the U.S. provides an opportunity for foreign producers to increase their prices as well, and so there's always the risk that you will make the foreign producers stronger in the short term.

In some instances, Commissioner, I will tell you that the longer term has not been good for the industry. Ultimately they couldn't survive despite the relief recommended. There have been other instances where the industry has survived, prospered, and but for the relief provided by the Commission would not have been able to do that.

There's certainly no guarantees in the Commission business and the remedy relief business, but the only guarantee I think that is fair to have is that this industry is headed for oblivion, extinction, and if there's not a remedy here there will not be an ability to know whether the consequences of relief will be bad or good.

COMMISSIONER PEARSON: Thank you.

CHAIRMAN OKUN: There were a number of questions on the operations of the industry that I had written hopefully to pose in public session, but given that we have an in camera I think I will just hold that entire line of questions for the in camera session when we can talk in more detail about information that's confidential business information.

A post-hearing request for you, Mr. Rosenthal, which is if you can include in your brief a focus on the conditions of competition that you think are particularly relevant here. I know you've been asked a question about the demand over the period, and I'd be interested in that as well.

As it relates to remedy, one of the arguments made about remedy by the Respondents is arguing about seasonality and when the imports come in. I wondered if there was anything you could say about that at this point?

I'd also like to cover it in post-hearing, but is there anything in terms of how you look at the record and how we would evaluate any remedy for any seasonality?

MR. ROSENTHAL: Two very brief points. One is despite their argument on seasonality that most of the imports will come in in the first half of the year, what Mr. Kerwin pointed out earlier I thought was quite interesting, and that is imports have continued to come in at an increasing rate since the first half of the year, so I think that undermines their seasonality concern.

We do concede that much of the sales take place in certain periods of the year, but it's apparent that the import sales don't follow that same pattern.

CHAIRMAN OKUN: Okay. Then you were asked a number of questions on remedy that I will look for in the post-hearing brief, but I guess in listening to your response a few moments ago I guess I would say, Mr. Rosenthal, that I would encourage you to put in not the one to negotiate down with the Administration, but the one you really think they need because, given the experience in the 201, I don't think that's what the Administration did.

Not that it was my remedy anyway, but I just want to say that. I'm not looking at you ask for the moon because you don't think that's what you're going to get. Give us what you think this industry needs.

MR. ROSENTHAL: Fair enough. Believe it or not, I believe that because of the uncertainties and for the reasons we told you about, that high margins by the importers, I do think the remedy we recommended is justified.

I also have been around long enough to know that it is unlikely that the remedy, even though I think it's justified, is likely to be accepted by the Administration, but I honestly believe that what we put in our prehearing brief and what we've told you today has a good economic rationale and will provide the basis for a recovery.

I hate to negotiate against myself, however, but we will put in alternatives and a greater justification for those alternatives in our post-
conference brief or post-hearing brief.

CHAIRMAN OKUN: Okay. Mr. Kerwin, you wanted to add something?

MR. KERWIN: Yes. Thank you. This is to follow up to Paul's answer and also comes back to the point that we ended Vice Chairman Hillman's questioning on in the last round.

I just wanted to add that the justification for the tariff that we requested at the time that we put the petition together to request for a 95 percent tariff was based on the disparity between the entered values of the Chinese product and the cost of production that is inherent within the domestic industry for this product.

Since that time, as the record has been developed it turns out that in point of fact the entered values of this product as reported in the questionnaires are actually lower than what was shown in the official statistics -- go figure -- and that the cost of production for the industry overall was actually higher, so the disparity is actually greater between the entered product.

The entered value and the cost of production is actually greater than what we pointed to for our justification in the petition. That's point one.

CHAIRMAN OKUN: Did the petition ask for the 95 percent, or did it ask for a quota?

MR. ROSENTHAL: We did ask for 95 percent. We said that we would wait to see the volume data once it came in because we thought a quota might be better. Having had the benefit of more time, et cetera, we decided to stick with the tariff recommendation.

MR. KERWIN: My mistake. We've submitted so many documents in this case so rapidly that I'm getting them mixed up. Perhaps that was the post-
conference brief. My mistake.

At any rate, the other point that I wanted to make was that when you're assessing a 95 percent tariff and you look at the average unit values as reported by the foreign producers of what they're selling this product into the United States for, and these are public figures, $645 per ton in the first half of 2003, that compared to an average shipment value of those products within the United States of $1,775 per ton. That's an enormous disparity, as we discussed before.

What you should bear in mind is that the tariff will be assessed on the entered value. It will be something very close to that $645 per ton. A 95 percent tariff on $645 is somewhere around the neighborhood of $600, $600 some.

If you then add that onto or compare that to the existing average unit value of $1,775 per ton, that works out to about a 34 percent increase in that we'll call it a selling price, even thought we know it's not. It's an average unit value. In relation to that average unit value, that's a difference of only 34 percent as opposed to the 95 percent on the entered value.

CHAIRMAN OKUN: I think the points have been raised, and certainly I'll look at them in post-
hearing, but I think this AUV issue I think raises a lot of concerns for me. If we're not relying on it for what you think that it's being sold for, I'm trying to understand whether that's a good idea to do for the remedy.

I think in formulating what we are trying to do. I think you need to keep those points in mind.

MR. KERWIN: Let me finish my thought. That 34 percent actually happens to be the highest figure of underselling that is shown in the product specific pricing information for the five products on which the Commission gathered data. Thirty-four percent. It's the exact same number.

That's assuming that none of the duty is absorbed by the importers. That's assuming that 100 percent of that $600 and some tariff is passed through in the price to the purchaser of this product. Personally, I believe that to be farfetched to assume that none of this duty increase will be absorbed by the importers.

CHAIRMAN OKUN: Okay. I will look at what you submit, and I will evaluate that if we get to that point.

Mr. Green, at the end of my last round we were talking about pricing in the market. I don't know if there was anything else that you had wanted to add. I thought at one point you had wanted Mr. Waugaman to comment on that.

Mr. Waugaman, you look like you have your microphone. Was there something you wanted to add?

MR. WAUGAMAN: Yes. If David was finished, I want to add something because I read the respondent's brief about an an August price increase and an April price increase, and here as Vice President of Sales and Marketing, I'm scratching my head trying to figure out exactly what they're talking about, so I an imagine the confusion of the committee as to what the price increases really were.

Let me address this very simply in saying the last list price increase that Tyler Union had was announced to take place in October of last year. It was less than a five percent price increase on fittings up through 12 inch.

It was not actually implemented until January of this year because implementing it early would have put us out of a competitive position. We implemented that in January of this year. That was the last price increase. That is the list price that's in effect today.

We also over the period of the last two years have had to increase our discounts, in fact lowering the selling price to the market on numerous occasions. We submitted with our questionnaire approximately 20 occasions where we have had to actually decrease the selling price by increasing the discount on the list.

We have made an attempt on a limited area to try to reduce the discount on the list, in fact raising list price or raising prices to the field, but on no occasion have we ever tried to do that above the level that we were prior to increasing our discount, so in fact there has been no price increases that have gone through that have not been subsequently addressed by a previous larger price decrease.

The only time I have ever seen, and I take my hat off to the Respondents talking about pricing and raising prices, but I can tell you the only time I've ever seen an announcement of a price increase by an importer that was not preceded by a price increase by a domestic supplier, the only time I've ever seen that happen was when a distributor gave me a copy of such price increase the day before, mysteriously the day before our last meeting here with the staff.

I may add that from our experience in the field, we have seen no implementation of that price increase or multiplier change, discount change that was announced at that time. I hope that clarifies the issue a little more.

CHAIRMAN OKUN: Yes. I appreciate all that additional information. To the extent there's anything that needs to be supplemented on the record, I would appreciate that as well.

Vice Chairman Hillman?

VICE CHAIRMAN HILLMAN: Thank you. I hope just one quick followup, Mr. Green, on the response that you gave to Commissioner Lane just to make sure I understand it.

Can you confirm? You said that the Tyler South plant is not currently operating today?

MR. GREEN: That is correct.

VICE CHAIRMAN HILLMAN: Okay. How much of McWane's production does that Tyler South plant represent? Again, if that's a confidential number you can submit it.

MR. GREEN: Okay. We will submit that confidentially.

VICE CHAIRMAN HILLMAN: Okay. When do you anticipate reopening the facility?

MR. GREEN: Negotiations with the state is a day-to-day process. We're making good progress, but I don't have a firm date. I would anticipate it here in the next probably week or so.

VICE CHAIRMAN HILLMAN: And the plant was shut when?

MR. GREEN: We voluntarily closed the facility as we worked these issues out with the state approximately three weeks ago. It was probably three Fridays ago tomorrow.

VICE CHAIRMAN HILLMAN: Okay. That's the only additional questions I had.

MR. GREEN: Could I possibly address --

VICE CHAIRMAN HILLMAN: Sure.

MR. GREEN: -- a question that Commissioner Lane had addressed?

I had a chance to go back and look at my real numbers when we were talking about production equipment being shut down. The first phase of the shutdown of the GFD molding line was done in July. That was where we eliminated a production shift.

In August, we eliminated the first shift, which would have been thus the second shift of production reduction, so that was done after the period of investigation, so technically July and August.

VICE CHAIRMAN HILLMAN: Okay. Appreciate those clarifications, and I have no further questions, Madam Chairman.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madam Chairman. I just have a couple of matters left.

First, Mr. Rosenthal, I'd like to echo what the chairman said with regard to your evaluation of your remedy recommendation. I don't really consider this a proceeding where you'd be negotiating against yourself. That's not the purpose of what we're doing.

At the same time, I remember when I asked you my detailed questions with regard to remedy. Initially, the one thing that stood out in my mind was that you kept using the word practical, so reminding you that I heard that more than once I would simply urge you to be practical.

MR. ROSENTHAL: I appreciate that. I'll certainly do my best on it, but I will tell you quite honestly that it is very important for the Commission to recognize when I say practical, I'm not talking about just politically practical.

COMMISSIONER KOPLAN: I understand.

MR. ROSENTHAL: I'm talking about effective remedy. When you're looking at a tariff remedy, you know as a matter of law that your tariff gets applied to the product value as entered. Actually, it's FOB foreign port. Then you add the freight and the insurance, et cetera.

It is not a tariff that is added or addressed solely at the margins of underselling. Mr. Kerwin explained how we got to where we got, and I think it is entirely justified. I also recognize that it's a much higher number than the Commission is used to hearing and it may take you aback, but it is a practical number. It is a number that's based on what's happening in the marketplace.

I also recognize that it is a higher tariff than this Commission has ever recommended, and it gives you pause. We will do our best to explain why that's the best way to go. If not, as I said, we'll come up with some alternatives that may make you feel more comfortable.

COMMISSIONER KOPLAN: I wouldn't say it gives me pause. I would say you got my attention with it. I don't think I need to say any more on that point.

MR. KERWIN: Commissioner Koplan, could I add one point? We're well aware that this is not a dumping case. We've heard that since we walked in the door this morning.

Just by way of illustration, I would say that it's not unusual in the least in the many dumping cases that we have seen in relation to products from China to see dumping margins of 200, 300, 400 percent often times in relation to the same product that may be coming from another source country that ends up with a 20 or 30 percent dumping margin.

COMMISSIONER KOPLAN: But this is not a dumping case.

MR. KERWIN: I'm well aware of that, but I provide that by way of illustration to say that it is not unusual to see these types of disparities, depending on the source country, that China is certainly the country that is typically selling products at the absolute lowest prices in relation to other countries.

Therefore, I don't find it extremely unusual when you're looking at China by itself to recommend a remedy that would be significantly higher than what you would recommend in the 201 context where you're recommending a remedy that would be applicable to all countries essentially in the world unless there's some exclusions.

COMMISSIONER KOPLAN: I appreciate what you're saying, Mr. Kerwin. I'm just saying when we're looking at a dumping case you're looking at an allegation that the product is being unfairly traded. The thrust in the 421 is not that. It's that there's this rapid increase.

MR. KERWIN: Understood. Understood.

COMMISSIONER KOPLAN: I appreciate, though, what you're saying.

Let me come back now, if I could, to the question that I left with on the last round just so the record is complete on it. You all have had a chance to think about it, but I'll state it again for the record.

In following up on other questions of my colleagues in this area, this particular area, I'd like you to discuss the impact of sales of this product from non-subject countries on your financial performance over the period of examination because those in our position have argued specifically that your capacity utilization cannot be properly evaluated without taking into account the extent to which domestic manufacturers have incorporated DIWF from third countries, as well as China, into their marketing strategies. Again, that's from PCI's prehearing brief at page 11.

MR. ROSENTHAL: Their argument doesn't get me more clear. I read it before, and I wasn't sure what they were saying then. I hate to have someone attempt to answer that because I'm not exactly sure what the allegation is.

To the extent that they're saying that --

COMMISSIONER KOPLAN: That's why I asked the question.

MR. ROSENTHAL: Honestly, if they're suggesting that third country non-subject imports have been incorporated into the industry's marketing plans and that has somehow affected capacity utilization, I'm not sure if that's where they're going.

I heard another argument from the Respondents about capacity utilization, which I think was that gee, since capacity utilization is historically low in this industry imports can't be the problem, which is another issue, but I'm not sure that's the one that you're asking.

COMMISSIONER KOPLAN: I thought what they were arguing was that non-subjects have had an effect on your capacity utilization and that that's not being taken into account. I thought that was the thrust of what they were arguing. They can better explain that this afternoon.

Mr. Green?

MR. GREEN: If I may address something on the capacity utilization subject? It is possible to be profitable in the sand molding foundry industry with relatively low capacity utilization rates.

It is important to note, in my opinion, that our rates have declined during the period of investigation during also a period of significant consumption growth because we are losing market share as the import share has grown two to three times.

Sand molding processes, unlike maybe coat hanger production or whatever, require a lot of maintenance repair time due to its destructive process nature. We also allow for some excess capacity. When we spend a significant portion of dollars into a molding line, we allow a little bit of growth room in a market that we anticipate to be growing at a somewhat steady rate, which we have seen over this period of investigation.

COMMISSIONER KOPLAN: Thank you very much for that. Does anybody else want to add to that?

(No response.)

COMMISSIONER KOPLAN: If not, I appreciate that response.

Finally, Mr. Teske, in your opinion, has the Chinese product been more widely accepted in recent years? If so, why and over what period of time?

MR. TESKE: I think in the U.S. in the whole market it's definitely had an increased acceptance, particularly in markets like Texas, Houston, California areas. I do believe that the Chinese product over the past 10 years has improved in quality, and I think their product breadth, their product offerings have improved.

I think many of the original importers just imported high volume items. I think over time they've added to their product line and in many cases can match what at one time would have been a domestic advantage of having a broad product offering.

I think that over time they've improved all those variables, coupled with the fact that they have a lower price, and because there's fewer domestic competitors over the same period of time I think they've been able to grow.

COMMISSIONER KOPLAN: Thank you, Mr. Teske.

If I could just come back, Mr. Rosenthal, just for a second on that issue of capacity utilization that we were just discussing? Because it's all bracketed and I can't get into it here, if for the post-hearing you take a look at page 12 of PCI's brief where there's a discussion of this, but it is bracketed? If you could respond perhaps in a little more detail post-hearing?

MR. ROSENTHAL: Certainly.

COMMISSIONER KOPLAN: Thank you very much. With that, Madam Chairman, I have no further questions, and I thank you all for your responses.

CHAIRMAN OKUN: Commissioner Lane?

COMMISSIONER LANE: With the shutdown of I think you called it the South Texas plant or maybe the plant in south Texas, that's been shut down for the last three weeks. Has the production been shifted to one of the other facilities?

MR. GREEN: Not yet. We've been drawing down the inventories of available product.

We're working diligently to get that facility back up and running, and we expect it to be in the near future so it is not as conceivable to be shifting production over to another facility. It would take a period of time to be able to do that.

COMMISSIONER LANE: Okay. Thank you. That's all the questions I have.

CHAIRMAN OKUN: That's all the questions you have? Okay.

Commissioner Koplan, do you have some guests to greet?

COMMISSIONER KOPLAN: Yes, I think this time I actually do, Madam Chairman. I'll hold Mr. Lahey accountable if the answer again is no, but I believe that the people who just came into the room are students from Brandeis University's International School of Business.

Do I see people nodding their heads in the affirmative? If you would all stand, I'd appreciate it. Welcome to the Commission.

(Applause.)

COMMISSIONER KOPLAN: Thank you, Madam Chairman. It's nice to be right once out of twice.

CHAIRMAN OKUN: Thank you, and welcome.

Commissioner Pearson?

COMMISSIONER PEARSON: I have no further questions, Madam Chairman.

CHAIRMAN OKUN: One question for the post-
hearing, which is if you, Mr. Green, could just give some, and I guess maybe what is the question is whether you had some type of production or business plan that would have related to when you installed the new equipment at Union and if we could have those submitted post-hearing? I was just kind of interested.

I heard what you said about demand, but if there was anything else that would have been in any business documents, I'd like to see those.

MR. GREEN: Okay.

CHAIRMAN OKUN: Mr. Rosenthal, as much as I love to engage in all kinds of legal issues with you, I don't think this is the case you really want to pick a fight with me on the footnote, so I'm going to leave it like that.

If you bring in another case where I think we need to argue about what Commissioner Koplan and I said about the WTO accession and the accompanying WTO China specific safeguards language and what the U.S. statute meant and what time period it was meant to cover, we can argue about it then.

MR. ROSENTHAL: By the time the next case comes around, it will be a historical anomaly.

CHAIRMAN OKUN: Exactly.

MR. ROSENTHAL: We can talk about it in our rocking chairs.

CHAIRMAN OKUN: All right. There you go.

With that, I don't have any other questions. I know we have a long afternoon ahead of us, so let me turn to staff to see if staff has any questions.

MS. MAZUR: Diane Mazur, Office of Investigations. Staff has no questions.

CHAIRMAN OKUN: Let me turn to counsel for Respondents to see if they have questions of this panel.

MR. LOEB: Madam Chairman, Hamilton Loeb for Respondents. No questions. Thank you.

CHAIRMAN OKUN: Okay. Before we break for lunch then let me remind all parties that the room is not secure, and you need to take any confidential business information you have with you.

We will return at 2:00. With that, this hearing is adjourned.

(Whereupon, at 12:55 p.m. the hearing in the above-entitled matter was recessed, to reconvene at 2:00 p.m. this same day, Thursday, November 6, 2003.)

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A F T E R N O O N S E S S I O N

(2:00 p.m.)

CHAIRMAN OKUN: Good afternoon. This hearing of the United States International Trade Commission will now resume.

Madame Secretary, I see that the next panel has been seated. Have all the witnesses been sworn?

MS. ABBOTT: Yes, Madame Chairman.

CHAIRMAN OKUN: Then Mr. Loeb, your panel can proceed as you like.

MR. LOEB: Thank you Madame Chairman and members of the Commission. I'm Hamilton Loeb. Again, we represent the Chinese industry. With me are my co-
counsel Scott Flicker and John Reilly who is our economic expert.

Then seated in various places behind and beside me are members of the importers or distributors and other participants on the U.S. industry.

We're going to save virtually all of the time other than the In Camera session for you to hear from the participants in the industry so this is how we'll proceed.

We will start with a brief set of comments on the rapidly increasing point, just to put the data in the right framework. John Reilly will provide that. Then we will go to the importers.

If we have a couple of moments of excess time once the importers are finished there are two or three further points that Scott Flicker and I will attempt to cover. If not, they're quite likely to come up in questioning.

Before I turn it over to John Reilly let me just provide a short preview on an issue that Commissioner Koplan raised that will bear on what you're about to see.

Our view as it says in the brief is that the relevant period for determining whether an increase is occurring or not at a rapid rate is in this case 2002-
2003 imports, so John Reilly has prepared his presentation using 2001 as the base year. You'll see that in a moment.

I'll come back later when we have time to explain the reasons why that position is proper but I'd just simply say that even if you use 2000 as your base year what you're going to see is that all of the change, all of the increase, all of the "rapid" activity occurred a long time ago and we would say cannot be squared with a finding that imports are rapidly increasing under the statute. Even if you include the 2001 imports in your evaluation of the increase rather than as part of your base period.

With that I'll turn it over to John Reilly.

MR. REILLY: Thank you.

Good afternoon, Madame Chairman and members of the Commission. For the record, I'm John Reilly appearing on behalf of the Chinese Respondents.

You won't see any visuals from me during the public part of the presentation. I had some put together but I liked Mr. Kerwin's visuals better so I'm going to use those and I'd ask you to refer to them.

I note on Figure 1 that he shows imports at close to 25,000 tons in 2001; almost exactly 25,000 tons in 2002; and then increasing to 27,500 tons approximately annualized 2003.

The problem is the data don't support his annualized 2003 figure. In fact during the interim period imports between the first half of 2002 and the first half of 2003 increased by only a little over one percent, from 13,800 tons to 14,000 tons. Applying that increase, that one percent or so increase to the products imported during 2002 would give you a figure of just over 25,000 tons. Around 25,500 tons. We believe this is a much more reasonable way of projecting imports for the year than Mr. Kerwin used.

Using his method you would have substantially overestimated imports during 2002. Rather than the 25,000 tons imported you would end up with close to 28,000 tons as an estimate.

Next he has shown market share. The projected imports that he has used for interim 2003 might imply that the import market share would be higher than 18 percent. I realize we're talking shipments here and not imports. But in fact that's a reasonable estimate of the import market share for the full year. That's an increase of just a couple of tenths of a percentage point over 2002 and in cumulation, two percentage points over 2001. The increase in share you see between 2000 and 2001 is the result principally of the sunsetting of the antidumping duties.

Next he showed you some data for 2003. Monthly data. This is Figure 3. These data, if you sum the imports for the first half of the year add up to 12,000 tons. Interestingly, the Chinese producers reported that their exports from China fell by over ten percent between the first half of 2002 and the first half of 2003, from roughly 15,000 tons down to 13,000 tons. So the import figures of 12,000 tons for the first half a year reported by Census are quite reasonable relative to the volume of exports from China which in fact declined between the first half of 2002 and the first half of 2003.

In addition the Chinese have projected that their shipments before year 2003 will be down. We realize there were some figures provided to the Commission that suggested that imports might in fact be up. In checking we have found that some of the data that was reported in the supplemental is in fact orders that were let for imports that will not be entering the United States until 2004. We will provide corrected figures as soon as we can.

That concludes my presentation. Thank you.

MR. LOEB: Next we're going to turn it over to the importers and distributors. Rob Gosselink has set up a batting order in that respect.

I'm going to turn the floor over to him. I would just note for the record that sort of like law school, he's sort of in the back row here. So Rob, we'll let you introduce the importers.

MR. GOSSELINK: Actually I think I'll just let the importers and distributors introduce themselves and go in the order we arranged.

First up is Larry Rybacki from SIGMA Corp.

MR. RYBACKI: Chairman, Commissioners, good afternoon. My name is Larry Rybacki. I am the Vice President of Sales for SIGMA Corporation, a New Jersey based importer of ductile iron waterworks fittings with over 240 American employees.

We import fittings from China, India, Korea and Mexico. Victor Pais, our President, and Siddharth Bhattacharji, our Vice President, join me today.

This October I addressed your staff regarding whether provisional duties should be applied in this case. Your resounding negative critical circumstances determination suggest that my testimony and that of other importer resonated with your staff. I hope that my testimony today also will help you to understand the current state of the U.S. ductile iron waterworks fitting market.

I trust that the information I am about to provide will guide you in determining that Chinese imports have not injured and do not threaten to injure the U.S. ductile iron waterworks fitting industry.

First, just a few facts about our company. SIGMA pioneered the production of ductile iron waterworks fittings in China. Through significant investment in our people, research and development, production, and our distribution system today is a strong and responsible partner in the American waterworks industry. Today we are the second largest ductile iron waterworks fitting supplier in the market but we are still a distant number two to the market leader McWane.

We are keenly aware how McWane has come to dominate our market. We hope that our observations will help you to put this case into the proper context.

First McWane dominates the domestic market. Plain and simple. The three main distribution chains -- National Waterworks, Hughes, and Ferguson have bought into the McWane loyalty program and are committed to buying all their ductile iron waterworks fittings from McWane.

These three chains account for more than 50 percent of the total market, and the reason for their decision to buy everything from McWane is simple. They have no choice. If McWane were to cut off one of these large distributors, the distributor would have no alternative source because no importer or group of importers has the capacity or resources to supply their high volume needs.

In addition, the three largest distributors cannot use imported merchandise for the Buy American portion of their business.

In the end, McWane is assured of the ductile iron waterworks fitting business of the three largest distributors in this country since McWane is their only option.

Even small distributors find themselves falling into line behind McWane precisely for the same reasons that steer the large distributors toward McWane as well.

My second point is that McWane uses an excessively large loyalty rebate, currently as high as 17 percent. That is not necessary given McWane dominance in the market. By offering an overly large loyalty rebate to its customers McWane depresses market prices and succeeds in squeezing its competitors -- foreign and domestic.

Third, we have concluded that year after year the remainder of the U.S. ductile iron waterworks industry is struggling financially as a direct result of McWane's aggressive behavior in the market.

As the Commission tries to determine whether relief is justified in this case, it is useful to look not only at how McWane behaves in the marketplace but also how McWane behaves towards its employees, the communities within which it operates, and even towards the federal agencies that are charged with protecting our well-being.

McWane's corporate behavior reveals the same "winner take all" approach to doing business. We wish to get into some of these painful details only to point to a common denominator in McWane's approach that has hurt us all.

McWane is so focused on maximizing profit at any cost the company over the years has amassed an unenviable record of environmental and occupational safety violations unmatched in the foundry industry. Here are a few key points.

Number one, since 1995 McWane has been fined roughly $10 million by OSHA, the EPA, and various state level agencies.

Number two, over 4,000 McWane foundry workers have been injured on the job.

Three, nine McWane foundry workers have been killed on the job.

Four, in 1995 McWane purchased its Tyler, Texas foundry and within two years had eliminated two-
thirds of the foundry's workforce without any drop in output and without any threat from imports.

This record suggests that McWane is a company willing to put profitability ahead of everything and every one -- its customers, its neighbors, its own workers included.

With the filing of this market disruption petition McWane is now using our trade laws in an effort to eliminate imports from China and elevate its current dominant position to a total monopoly over the U.S. ductile iron waterworks fitting market.

Let me give you the snapshot of how McWane has reinforced its dominant position, even with respect to other U.S. producers.

Each of the three major distribution chains is aligned with a major ductile iron pipe producer. National Water is with McWane. Ferguson with ACIPCO, and Hughes Supply with U.S. Pipe and Foundry. In 1999 Pipe reached an understanding with Hughes Supply for Hughes to increase its ductile iron waterworks fitting purchases from U.S. Pipe to complement existing pipe business between the two companies. Responding to this new arrangement U.S. Pipe increased its own ductile iron waterworks fitting manufacturing capacity and also sourced additional fittings from Brazil.

When U.S. Pipe started delivering the imported fittings to Hughes, McWane objected. McWane threatened to cut off its supply to Hughes and Hughes, who relied on McWane for some of its ductile iron waterworks fittings was forced to withdraw from the arrangement with U.S. Pipe.

McWane's success in derailing the Hughes-
U.S. Pipe plan left U.S. Pipe with lost market share and as a result excess inventory of imported fittings and newly added production capacity that now stands idle. Instead of looking behind him, Mr. Murray should have looked to his left to find out what the problems are at U.S. Pipe and Foundry.

The financial cost of this lesson was not lost on U.S. Pipe. They realized that the only way to keep their Hughes business was to buy ductile iron waterworks fittings from McWane and sell this merchandise to Hughes, even if it would mean lower profit margins.

Given McWane's powerful position in the U.S. market we are at a loss as to why McWane filed this petition. WE think that the Commission also should question McWane's motivations for filing this market disruption case especially given the company's total control over the market and its demonstrated ability to limit the portion of the market that is open to imports.

It is also instructive to note that the other U.S. ductile iron waterworks fitting producers did not join McWane in filing this petition possibly because they felt that McWane's tactics, not imports, are the biggest threat to their long-term position in the ductile iron waterworks fittings market.

This concludes my testimony.

SIGMA is confident that after the Commission reviews all of the facts in this case you can determine only that Chinese ductile iron waterworks fitting imports are not a case of injury and do not threaten to injure the U.S. ductile iron waterworks fitting industry in any way, shape or form.

Thank you for your time and this opportunity to present our case.

MR. McCUTCHEON: Good afternoon, Madame Chairman, members of the Commission, and Commission staff. My name is Dan McCutcheon and I'm the Vice President of Star Pipe Products in Houston, Texas. I've been in the pipe fittings business for more than 20 years and currently have direct day-to-day involvement in the ductile iron waterworks fittings market. Consequently I am familiar with the marketing practices of McWane and the dynamics of the market.

Star Pipe is one of the largest U.S. importers of ductile iron waterworks fittings from China, Brazil, India and Korea. Our primary role is to provide the waterworks industry with a viable alternative to the McWane monopolistic business model. Without Star Pipe and other similar distributors the U.S. waterworks industry would be entirely dependent on a source that has proved itself to be unreliable as a full service provider and attempting to control the very customers it should be serving.

I understand that the Petitioners must show that the imports from China have increased rapidly. In 2001 we did show an increase in imports from China. However, the Commission should note that there was a prohibitive antidumping duty of 127 percent that covered many of the products now subject to this investigation that we had imported from China prior to the dumping case.

The availability of Chinese product permitted us to replace certain of our imports from other countries with the Chinese products.

Moreover, the pre-2000 imports were tainted by the existence of the antidumping order, thus skewing the natural market circumstances.

In fact the public data before the Commission show that imports from China have attained an equilibrium since that time with a flat market share.

It has to be noted that we have not taken volumes away from McWane in this market. ACIPCO, a U.S. producer, has historically been a McWane customer. However two year ago ACIPCO left McWane in favor of sourcing almost exclusively from Brazil. This resulted not only in McWane's loss of ACIPCO's very large volume of purchases, but ACIPCO also went into direct competition with McWane for a number of large distributor customers and ACIPCO has been successful in its competition with McWane in many cases.

Similarly, Griffin Pipe moved its domestic DIWF production to Mexico in 2000, a plant it closed earlier this year. Recently we have been told that McWane has refused to sell any DIWF to Griffin because Griffin is sourcing certain of its requirements from import services.

Additionally a few years ago U.S. Pipe also dropped McWane and shifted to a Brazilian supplier. After purchasing a lot of tonnage they recently recanted, dumped the imported inventory in the U.S. market, and resumed their relationship with McWane.

Based on the data it is pretty clear that since 2001 imports from China have been relatively slack. It is just as clear that the U.S. volumes have been affected by the U.S. industry's, particularly McWane's, own business judgments, entirely unrelated to the Chinese imports.

Now I'd like to introduce Pete Lisowski. Pete's a sales manager with Star Pipe and he will address more of the fittings market dynamics.

MR. LISOWSKI: Good afternoon Madame Chairman and members of the Commission. My name is Pete Lisowski. Since 1996 I've been a sales manager for Star Pipe and responsible for sales of fittings and pipe products to waterworks customers.

From 1991 to 1996, after five years as district sales manager with McWane's Atlantic states pipe company, I was employed by McWane as the Assistant General Sales Manager at Clow Water Systems.

In early 1996 while I was still at McWane, McWane instituted what is known as its loyalty rebate program in its pricing policy to customers. At the same time McWane began aggressively lowering its multipliers for fittings. Initially the loyalty rebate was seven percent and was granted to only those customers that purchased 100 percent of their requirements from McWane.

The rebate was canceled and the multiplier was increased if a customer purchased imported fittings and McWane found out about the purchase.

This morning McWane categorized its rebates and multiplier adjustments as effective price reductions to meet subject import prices in order to retain sales. However, I can uncategorically state that when it was instituted the purpose of McWane's loyalty rebate program and the region-specific multiplier differentials was to drive importers -- specifically Star and SIGMA -- completely out of the U.S. market. It attempted to do this by aggressive reduction in multipliers in those regions where importers attempted to market their products, and by punishing customers not 100 percent loyal to McWane.

In fact in 1996 when I was with McWane's Clow Pipe Company, a Clow manager repeated on several occasions that McWane "has deep pockets and intends to drive the importers out of the fittings market."

I compete with McWane in the market today and based on what I see as McWane's marketing practices I do not think this policy has changed.

This may appear to be a subtle distinction but I think it is important for the following reasons. When I am evaluating selling fittings to a potential customer from whatever of the several foreign sources we procure from. We procure from Brazil, India, Korea, and China. Our pricing into the U.S. market is identical for all products made to the same specification, no matter the source.

I look to the McWane multiplier in that region and then the McWane rebate. The McWane and Star List prices are identical. Over the years my pricing of Star Fittings into the U.S. market has always keyed off the McWane price and I have lowered my price only in response to McWane's adjusting its base list price, a reduction in its multiplier, or an increase in its rebate.

Over the 1996-2003 period McWane has increased its loyalty rebate from seven percent to 17 percent. McWane is clearly the price leader in the fittings market and their lost profits are due to their own actions of lowering prices and increasing rebates.

Also I disagree with McWane's testimony that price is the only factor behind why a purchaser buys fittings from Star rather than McWane. Many of our customers are from distributors being thrown off the McWane program for not following McWane's arbitrary rules. These customers feel violated and choose never to go back on the McWane program. A substantial share of our sales is a result of the customer not being able to obtain from domestic producers the specific fittings in the required quantity at the required time.

Keep in mind that there are more than 1500 different configurations of fittings and when a specific fitting is needed for an ongoing project a delay in procuring the product can result in significant cost overruns for the project.

For logistical reasons a particular supplier, importer or domestic producer cannot always meet a customer's spot requirements and many of our sales are because we have the right fitting product at the right time in the required volumes.

Many buy from Star for better quality, better service, and the fact that they do not want to put up with the arrogance of being told who they must buy from.

In fact McWane's policy when it acquired Tyler in 1995 was to trim away what was perceived as the fat in the operation in order to cut costs. Unfortunately for Tyler and for McWane's customers, the first constant to be cut was quality control. Not only were many people put out of work but their product quality suffered.

As I noted above, my experience in the market is that this cut throat approach to production and marketing, to the disregard of quality and service, is still McWane's business model.

Thank you. I would be happy to answer any and all of your questions.

MR. MORRISON: Good afternoon. My name is Ed Morrison and I'm President of the CI Thornburg company based in Huntington, West Virginia. We are a family-owned waterworks distributor employing 85 people and our warehouse and truck driver personnel are members of the Teamsters Union.

In addition to ductile iron waterworks fittings, we also sell ductile iron pipe, valves, hydrants, and many other products. I have 30 years of experience in the industry.

Our company purchases imported ductile iron waterworks fittings and also purchases ductile iron waterworks fittings from Tyler Union. In fact our company has been a Tyler distributor for many years, even before Tyler was purchased by McWane.

A few years after Tyler's purchase we were introduced to the loyalty rebate program under the new McWane management. This McWane loyalty program is a volume rebate plan with a twist. McWane requires the distributor to buy 100 percent of their ductile iron waterworks fittings from McWane. It gives McWane the power to deny the accumulated rebate to a distributor if the distributor has broken the 100 percent purchase commitment by purchasing imported or domestic product from another supplier.

In our business, however, it is impossible for a distributor to service ductile iron waterworks fitting customers completely through only one supplier. The large range of fittings, the need to have every configuration in stock, and customer service issues can be optimized only when we have multiple sources of supply.

For example, we have a pipe fabrication shop that makes full pieces and other items for use in water and sewer plants. Since McWane does not make flanges or ductile iron waterworks fittings above 36 inch we have to find another supplier to source such product. It is difficult, however, for us to deal with one supplier just for large size fittings and flanges and not give them any of the other ductile iron waterworks fitting business.

I want to explain further how McWane's loyalty rebate is hurting distributors.

First, McWane's insistence that distributors buy solely from them contradicts what is demanded by the needs of our business. Moreover, McWane is selective about enforcing this compliance.

In our own market McWane has allowed Hughes Supply to quote and sell imports, yet has continued to give them the top loyalty rebate because they were part of a large national chain. I could not compete with Hughes Supply due to the double standard, nor could I buy imports for fear of losing my loyalty rebate.

In addition, our company lost business to Clow, a McWane company, when Clow sold ductile iron waterworks fittings direct to contractors below our McWane cost.

McWane thus created a situation that forced me to choose between McWane and imports. I was forced to give up my loyalty rebate and buy imports in order to remain competitive in the marketplace. Not because I wanted to, but because when you decide to leave McWane you have no other domestic option.

In our market if you cannot buy from McWane you have to buy imports in order to source the product. We have not come across this restrictive situation with any other products we distribute -- ductile iron pipe, valves, or hydrants, where there are a number of supply options.

In the ductile iron waterworks fitting market McWane is the only full service supplier and our only alternative to McWane is to buy from a combination of importers.

McWane might have lost some of our business but it is not because I prefer to buy Chinese imports. McWane has lost some of our business solely because of McWane's restrictive loyalty demands.

The role of the imports is crucial and there is a need in place for them. If China gets banned or restricted I am sure another country will supply the same ductile iron waterworks fittings.

Thank you.

MR. GROENIGER: Good afternoon. My name is Mike Groeniger. I am President/Owner of Groeniger & Company. We service the waterworks distribution in northern California with 14 branches. WE are a third generation family-owned company and I have personally been in the business for over 40 years.

WE buy ductile iron water fittings from all the major suppliers that service the California market including Tyler, U.S. Pipe, ACIPCO, SIGMA and Star.

In early 2002 the Tyler management approached me and asked to supply the ductile iron fitting business that we were giving to SIGMA, fully aware of the service and support commitments that SIGMA was giving us. Tyler stated that they would earn their way.

With the Tyler program, our business with Tyler increased but was limited because of delivery and service concerns -- not price. Tyler was not happy with that return and abruptly canceled our program. It also canceled our earned rebate -- retroactively -- and increased our prices 25 percent, in effect denying us access to the Tyler fittings.

We successfully responded by putting together a package from U.S. Pipe and Foundry Company and SIGMA that would take care of our sourcing needs both domestic and imported.

Months later Tyler reassessed their decision and requested to get back the domestic part of our ductile iron fitting business. At the same time, however, Tyler lowered the normal pricing in northern California by 15 percent across the board. There was no other low pricing from any import or U.S. fitting manufacturer that Tyler needed to match. This price drop was totally unnecessary and it was also expensive for us as it immediately discounted our inventory value.

Tyler has persisted in keeping the pricing levels down even when it did not increase Tyler's market share in our area.

Throughout this time Tyler's pricing in southern California where we do not have as much presence remains considerably higher.

WE feel it is important and necessary for us to have multiple suppliers of ductile iron fittings. Since the range is so wide there is no one supplier that can possibly supply everything that we need when we need it.

We prefer to have Tyler as one of those suppliers but we have been forced to go elsewhere because Tyler is not a reliable supplier.

Fortunately for us U.S. Pipe and Foundry, a domestic manufacturer, has been more than supportive during this period and our business with them has increased ten-fold. Today it is a strong, growing partnership in the millions of dollars.

In conclusion, it is my belief, and I have told the management of Tyler numerous times that if Tyler would only adopt a customer-friendly business philosophy coupled with the overall value of what they offer -- quality, range of product, and service -- with competitive and stable prices, without threats and intimidation, they will stand to retain and even grow their current large market share with healthy profitability.

The American waterworks industry is known for its stability, yet even when dominating most of the market Tyler doesn't seem to be satisfied and it is this dissatisfaction and short-sightedness, not Chinese imports, that has led to any of the alleged financial difficulties.

I sincerely appreciate the opportunity to address this Commission. Thank you.

MR. LINDQUIST: Good afternoon. My name is Elliot Lindquist.

Prior to June 13, 2003 I was a 50 percent owner of Public Works Supply Company in Danvers, Mass., one of the leading waterworks distributors on the New England area with annual sales over $20 million. Public Works Supply Company has maintained an ongoing relationship with both domestic and foreign producers of ductile iron fittings. I have 30 years of experience in this industry and it's safe to say that I've been deeply involved in the purchase and sales of ductile iron fittings in the New England market.

Public Works has been a distributor for U.S. Pipe and Foundry for their entire range of ductile iron pipe fittings, valves and hydrants. If Public Works had to rely solely on U.S. Pipe for our ductile iron fittings, Public Works could not solicit many projects because U.S. Pipe does not manufacture an entire range of ductile iron fittings.

Moreover, because Public Works is a distributor for U.S. Pipe, McWane has refused to sell Public Works at market competitive pricing. Public Works therefore needs imported fittings in order to maintain a competitive place in the market.

In the last few years U.S. Pipe's commitment to the ductile iron fitting market has diminished and we have had to rely on imports more than ever before.

I also believe that a major factor in U.S. Pipe's diminished interest in selling to customers like Public Works reflects their loss of significant market share following McWane's acquisition of Tyler.

As McWane has aggressively targeted all of its competitors and taken market share away from other U.S. producers, U.S. Pipe has not been able to maintain its position or justify continued investment in their plants.

With regard to Tyler and Union, they are the only manufacturers that can consistently sell through distributors. Clow basically is a pipe company that sells direct to end users and concentrates on plant jobs.

Distributors buying from Tyler and Union need access to large fittings that McWane does not manufacture. Since imported fittings are the only attractive alternative to McWane, most distributors need to buy at least some portion of their requirements from importers.

In my opinion, McWane is the clear industry leader that is followed by all other manufacturers, domestic or imported. But their large size and inherent advantages as being the only credible supplier of domestic ductile iron fittings, McWane can set any price levels it deems appropriate and let the market follow them. They have this power and opportunity as all other manufacturers are of modest capacity and do not threaten McWane in any face of its business.

However, McWane has displayed highly irresponsible pricing policies designed mostly to intimidate customers and competitors alike. McWane has steeply dropped pricing in regional markets like New England to lure distributors, and then has raised pricing dramatically once they feel secure.

Distributors are reluctant to revert to other manufacturers when McWane's prices go up because they are constantly uneasy about McWane's readiness to drop price again if they do.

McWane's price volatility is also unhealthy for distributors because they incur inventory losses when the market drops.

It is my position that rather than harming the domestic industry, Chinese ductile iron import fittings actually have helped support the U.S. industry by complementing the product lines offered by non-McWane producers. Chinese imports are therefore performing a valuable service by enhancing non-McWane producers as a credible alternative in the U.S. market.

Thank you for your time. I'll be glad to answer any questions.

MR. SAHA: Good afternoon. My name is Steve Saha. I'm the Vice President and part owner of Pipeline Components Inc., PCI, located in Houston, Texas.

PCI is an importer of several ductile iron waterworks fittings from China and India. It is important for the Commission to understand the role of PCI as well as Star Pipe and SIGMA in the U.S. market place. We are marketers and master distributors. We do not manufacture DIWF. We buy it from foundries in China and India. We import it. We store it in our warehouses and we sell it to waterworks distribution houses. We deliver to our customers.

Our sales activities in the United States require us to employ warehousemen, drivers, clerical staff and salesman. We employ 59 people at PCI and I believe that altogether Star Pipe, SIGMA and PCI employ more than 500 people.

We have overhead and selling expenses that we must cover like any other distributor. As a consequence the price at which we sell DIWF are substantially higher than our cost of acquisition.

While our selling activities do make a significant contribution to the U.S. economy, my point this afternoon is different. The relationship between prices for domestic DIWF and prices for China or India DIWF can only be analyzed accurately by looking at the average unit value of the U.S. producers' shipments and the average unit value of the importers' shipments, not the average value of imports.

There are two reasons why this is important. First, prices should be compared where competition is actually taking place. McWane does not compete with China for my business. McWane competes with me for the business of the waterworks supply houses.

Also my selling expenses and the ocean freight are not reflected in the average value of imports. They are accounted for in my price to my customers.

Second, the average unit value of shipments takes into account the segmentation of the DIWF market by size which defies so-called representative products for which we were asked to give price data do not.

I know that the Commission concluded in its critical circumstance determination that the U.S. industry as a whole produces a full range of DIWF but there clearly is a segmentation in the U.S. industry based on size with McWane overwhelmingly dominant in smaller sizes which ACIPCO, American Cast Iron Pipe and U.S. Pipe do not make; and the larger fitting segment dominated by ACIPCO and U.S. Pipe.

DIWF from China is sold in both size segments. The five products that McWane claims are representative all have diameters of only six or eight inches. Therefore, the quarterly prices for these so-
called representative products generate only limited information concerning price relationships between domestic and imported DIWF.

At the critical circumstance conference I listened to Mr. Waugaman from Tyler Pipe confirm that McWane raised prices in October 2002. I also heard him testify that McWane had suffered 20 different multiplier point decreases. What I did not hear Mr. Waugaman say is what the entire industry knows --
McWane has different multipliers for different parts of the country and McWane commonly raises it multipliers in some areas at the same time that it reduces them in others. McWane can reduce its multipliers in a number of states but still achieve an overall price increase.

At PCI we will obtain and provide to the Commission evidence showing that McWane's most recent price increase in August 2003 raised multipliers in substantially more areas than it reduced them.

There is no doubt that prices are increasing. In addition to McWane's August 2003 price increase we at PCI announced a price increase on September 8th which has taken effect. SIGMA has also announced a price increase which has taken effect. Sales call reports submitted by myself document that McWane's August price increase has been successful.

The claim that DIWF from China severely undercuts domestic producers' prices omit. For example, my salesmen's call reports document McWane's underselling of prices in at least three states and our import competitors' prices in at least two more states. In a fourth state the results of bid tabulation -- namely El Paso Water Utility Board dated only a few weeks ago showed the distributor offering Tyler/Union DIWF captured most of the bid by substantially underbidding distributors offering DIWF from PCI.

The water project is not the only case in which PCI has lost sales to domestic manufactures. As part of our pre-hearing brief we submitted internal PCI documentation tabulating the sales for water treatment plan jobs we have lost to domestic competition in 2003.

From PCI's perspective the domestic industry members are strong competitors. The trade restraints requested by McWane are unnecessary. Thank you.

MR. FLICKER: Good afternoon members of the Commission. My name is Scott Flicker. I'd like to start my very brief remarks today with a riddle. The riddle is, when is a Section 421 case not a Section 421 case? The answer is when it should have been brought under Section 201.

I think the evidence is overwhelming in the record that the non-subject imports in this marketplace are a significant player and that the non-
subject imports will not only continue but stand to benefit and increase if relief is granted against the Chinese imports. In other words, the relief that would be granted in this case would have absolutely no effect on non-subject imports and it appears that the non-subject imports would be the beneficiary here.

So why did the Petitioner file a Section 421 type case instead of the Section 201 case?

We think that the answer lies in the lower burden of proof that the Petitioner faces under Section 421. The Petitioner need show in this case material injury, not the serious injury that is required under Section 201 which this Commission has said is a higher standard.

Furthermore, in this proceeding, and perhaps this is the more salient point, the Petitioner need only show that Chinese imports are a significant cause which this Commission has found to be one of many and not even the largest cause of injury, as opposed to the substantial cause requirement under Section 201 which precedent has shown has to be the largest cause or at least one of several of the largest causes of injury.

Now it's a bedrock principle under the WTO, and after all, Section 421 is essentially implementing a WTO accession agreement. It's a bedrock principle under WTO that measures that are imposed by a party not discriminate.

The global safeguard provision of Section 201 does derogate from this in the sense that it discriminates against imports and domestically produced products, but it is internally non-
discriminatory.

Section 421 on the other hand picks out one country for special treatment -- China. In other words it's a derogation from a derogation principle.

So in the presence of a large volume of non-
subject imports how can a Petitioner consistent with the WTO non-discrimination principles sustain a Section 421 case when it should have brought a Section 201 case?

The answer is it shouldn't and it can't.

If you examine the statute, the President's authority to impose relief under Section 421 requires that the remedy be necessary to remedy the injury suffered by the domestic industry. The evidence on this record shows that the relief that the Petitioners ask for not only would not remedy any injury that they claim, it's totally unnecessary. This Commission, of course, must render a report to the President which recommends a remedy that would be effective and also must include in that report the effects if the remedy were not imposed.

When the effects if the remedy were imposed and the effects if the remedy were not imposed are the same, the answer is there should be no relief under Section 421. We believe this is what principle the President recognized in ultimately deciding that no relief should be granted in the garment hangers case.

Here the presence of non-subject imports is substantial, it's significant, it is essentially capacity on the ground.

In the garment hangers case, the presence of non-subject imports was small. It was only the likelihood that the Chinese production could shift to another market and come in that inspired the President in that case to decide that no remedy should be imposed. We think this is a far more compelling case and we thought it was important to bring to the Commission's attention that this is in fact a Section 201 case at best.

MR. LOEB: Let me just make one final point and then we'll conclude our presentation.

I don't want to leave it unsaid in the direct part of our presentation at least speaking for the Chinese Respondents here.

There was considerable commentary from Mr. Girard when he was here with respect to differences between U.S. labor conditions, Chinese labor conditions, and comments about what's in, as he described, the Chinese Respondents' briefs.

I just want to call the Commission's attention to pages 28 and 29 of our brief. The three paragraphs where we touch on quotations from McWane's President, quotations from the New York Times, and that's the sole extent of our commentary in that respect.

And more importantly, as page 28 says, this is not a case about the Petitioners' workplace practices, although we think there are some analogies and you've heard them drawn by the importer sitting here. This is a case about the data. This is a case about the numbers. This is a case about the usual information that the Commission collects and has collected here. And on the basis of that data, with or without regard to workplace safety issues, we think this Commission should and we hope will come down negative on the market disruption determination.

With that I think we are ready for questions.

CHAIRMAN OKUN: Before we begin our questions let me take this opportunity to thank all the witnesses for being here. Again, we very much appreciate all the industry witnesses from the various parts of the country who are here today to testify. I think it's very important to hear from you.

One other thing, just to remind you as well, that when you respond if you could help us out by repeating your name. It's very hard to see all the way back, so we'll be looking to see who's responding.

With that, Commissioner Miller will begin our questioning this afternoon.

COMMISSIONER MILLER: Thank you, Madame Chairman, and thank you to the witnesses as well for being here and being willing and wanting to share your story with us. We do appreciate that.

That said, I've been trying to decide exactly where to go with the questioning. Because as I listened to essentially a litany of complaints about McWane and their business practices, Mr. Loeb, I'm trying to understand how I consider that in light of the factual record that I have before me.

The factual record I have before me shows me large margins of underselling by the Chinese, contrary to what I'm hearing regarding pricing from the distributors here, so you can tell me what I'm missing there.

It shows the growing volumes of imports from China and lost market share by the domestic industry. So you can tell me how that fits with what you're hearing.

And definitely a declining financial performance, and not a good financial performance by any means.

So I don't really know how those things that I see in this factual record fit with the complaints that I was just hearing and some of the comments I was just hearing about pricing and business practices, whatever. I don't even really quite know where to begin. So anybody's welcome to comment on that.

MR. REILLY: Commissioner Miller, John Reilly.

Thank you for previewing my in camera testimony.

COMMISSIONER MILLER: All right.

MR. REILLY: We do address in the in camera testimony specifically the pricing issue that you mentioned, the apparent underpricing. We also address specifically the financial performance issues that you mentioned. I guess I'll leave it at that until we go in camera.

COMMISSIONER MILLER: You're telling me that you're going to tell me that it's something different than what I see on our factual record and I will look forward to your testimony.

MR. REILLY: Thank you.

COMMISSIONER MILLER: Then in all honesty, I'm trying to decide how to pursue with the distributors and importers -- Let me start with the pricing.

Our record clearly indicates that the pricing of subject imports is considerably lower than the pricing of the domestic product. I don't think that's consistent with what I heard you saying. So tell me again your basis of knowledge and what you understand of pricing in the market.

MR. LOEB: Could I comment on that before the importers get into it?

COMMISSIONER MILLER: Sure.

MR. LOEB: I just want to kind of set the framework and give you one layer of detail more than Mr. Reilly feels comfortable talking about in public, but I'm quite sure we can say the following.

One is that there is a significant difference between what you see when you look at AUV data across the full spectrum of products and what you see in the pricing products with respect to underselling issues. More on that in the APO Session, but there is a significant lack of fit between the products that the Petitioner selected for pricing product analysis and what the aggregate data seems to show.

Secondly, a large portion of what you will hear I'm sure from those who can talk about it, I don't know if the importers can really link this up. But certainly when you talk about issues like the declining financial performance or lost market share and particularly on declining financial performance, what we think you see when you look at the data, as will be explained in the APO session, is that financial performance declines are traceable directly to things that are not import related, in fact almost by definition cannot be import related. There's a variety of the Commission's standard variance analyses that Mr. Reilly has done that he'll be presenting in the APO to show the lack of a link between the pricing, or the link between the declining financial performance and these allegations about pricing.

Now with that said, let me turn it over to importers and see if they've got comments.

MR. REILLY: Commissioner Miller, I just one to jump in for one, just very briefly on the issue of what I will call the apparent underpricing. I guess there is something I can say in public so I'll get it out there.

You heard this morning that the McWane multiplier goes from 50 percent discount to 71 percent discount. You remember that?

COMMISSIONER MILLER: Uh huh.

MR. REILLY: That's off list price. And let's assume for a moment that the list price is $100. That means that the lucky low price buyer gets a price of I think it's $29 and the unfortunate high price buyer gets a price of $48. So you have some buyers from McWane paying $48 for their product, some paying $29.

The price of $48 is 65.5 percent higher than the price of 29. That's discriminatory pricing. I don't know any other way to describe it.

What you see in the pricing data is the effect of discriminatory pricing by the domestic producers.

MR. RYBACKI: My name's Larry Rybacki with SIGMA Corporation.

I'd like to address two issues, Commissioner Miller. One is the negative financial performance. I think I'd like to talk about how U.S. Pipe was represented today, and Mr. Murray made that point very clearly.

First of all, U.S. Pipe owned by Walters Industry, a publicly-traded company. It's no secret that U.S. Pipe has had a tough year. Why have they had a tough year, or why have they had a tough last couple of years?

I think one has not to look at ductile iron waterworks fittings, it has nothing to do with it. I think you have to look at it two ways. One is a botched program to modernize a facility in Chattanooga that was ineffectual and cost U.S. Pipe an inordinant amount of money. And more importantly, the reason for the decline in financial performance by the majors in the waterworks industry was a pipe price war started between McWane and ACIPCO that U.S. Pipe had to participate in. And because of the disagreement between McWane and ACIPCO that started in the Portland-Seattle area and worked its way into Florida and other markets, U.S. Pipe's comfortable profit margins that had normally carried the company in the pipe business declined drastically, and Walter Corporation reported that U.S. Pipe had a tough year.

That pipe market is now stabilized and Walters Industries is looking forward to a good 2004.

As far as pricing goes, I don't have all the data that you have, Commissioner Miller, but I run the pricing for SIGMA Corporation, and like Pete at Star Pipe, we follow, as the second largest supplier of fittings in North America, we follow McWane in every way, shape or form. They lead in every marketplace in this country.

Also when you're talking about pricing it is not, as I said the first time in my testimony weeks ago, that you have to look at the bottom line. I'm not so sure 17 percent is as high as -- I think McWane goes higher than that to certain distributors. We have never gone anywhere near that. Because we're concerned with bottom line performance and we're also concerned with where the marketplace is headed and keeping the market stable and strong.

So our incentive program or rebate program is much different than that of McWane's. When you're looking at a price, if something's $5 and something's $4 and somebody's given 20 percent off, it's the same thing.

So what we're doing is we're trying to get to the net number. As Pete so eloquently said, we're trying to get to the net number where the marketplace is and we follow the leader. Where the leader goes, we go. That's true from New England to California. It doesn't make a difference. WE follow McWane wherever because they are the undisputed market leader.

CHAIRMAN OKUN: I see a hand in the back. I think that must be Mr. Bhattacharji?

MR. BHATTACHARJI: That's right, Siddharth Bhattacharji.

CHAIRMAN OKUN: I can't see your name plate but I have another way.

You wanted to comment?

MR. BHATTACHARJI: Yes, I'd like to add to this apparent anomaly on the pricing which John will address and we are certainly going to back it up with more information in the post-conference.

But it's again the dynamics of the market. McWane in its dominant position is able to assure itself a lion's share of the routine business, and by that I mean they're going to all the major chains and they're getting, as we have said, almost all their business. They're getting to the distributors and in most cases they're able to enforce their loyalty. And overall, they're able to get a lion's share of the market.

Now suppose theoretically speaking McWane has 60 percent of the market on the whole. When you are coming to a fast-moving item like the ones they have picked up, like the six inch 90 degree bend, their share of a six inch 90 degree bend in the whole country is much more than their 60 percent national average for the entire DIWF.

It could be as high as 70, 75 percent simply because they are getting the routine business and a lion's share of the routine business.

I think it suits their model because they would like to run thousands and thousands of the six inch 90 at one shot to keep their production costs down.

What it does is, and we'll give you a little mathematical model in the post-conference brief. What it does is this six inch 90, they're able to sell for example all the way from $78 or whatever down to $40 depending on the sensitivity of the market in which they service it.

Since they're offering the $40 price where there is imports and they want to keep the pressure on the imports so the imports can't make money, they are not obliged to give the same pricing in the markets which are domestic only or have a domestic preference, so they can charge a much higher price.

Now what happens is in a product which is like 70 percent of the market share, effectively for that item they are getting a much larger revenue because they're able to sell correspondingly more of the high multiplier pricing than the lower.

When you look at the import mix, the imports are selling much less in that area for that item.

COMMISSIONER MILLER: Mr. Bhattacharji, I'm sorry to interrupt you but I know you're way back there and you can't see how long the red light has been on.

MR. BHATTACHARJI: I'm sorry.

COMMISSIONER MILLER: Unfortunately, my colleagues can.

I appreciate your answer. You're welcome to add anything more in the post-hearing brief if you would like and I may have further questions in the next round.

Thank you.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madame Chairman.

I too want to thank the witnesses for their testimony this afternoon and also for their pre-
hearing submissions.

Let me just start, Mr. Reilly, I share the same concern that Commissioner Miller expressed and I know you all are going to be getting into this in the in camera session, but my recollection is that this morning Mr. Waugaman and Mr. Blair of Tyler Pipe, I think they made the statement or said that SIGMA and Star Pipe price their products similar to the way that McWane does. I thought I heard that. If so, I'd like to hear from SIGMA and Star Pipe on that now.

MR. RYBACKI: Larry Rybacki again, SIGMA Corporation.

I answered it I think a little bit before, but Commissioner Koplan, we do price everything off of what they do. Every marketplace we find out where they are. WE follow their list, we follow their marketing condition, and everything is, every deal we make, everything we do, is followed by the leader. So we follow the leader no matter what.

COMMISSIONER KOPLAN: Go ahead.

MR. McCUTCHEON: My name is Dan McCutcheon, Star Pipe.

To keep it brief, I share the exact same sentiments and comments that Mr. Rybacki had. They are the market leader. WE price off of them. WE use similar list pricing multiplier systems, et cetera. We follow. We don't lead.

While I've got you, just one more topic that came up this morning that appeared to be a little confusing.

The marketplace receives a pipe fitting. Whether that fitting is from China, India, Korea, Mexico, it's sold at the same price by the importers. We don't draw a distinction between which country we purchased it from.

COMMISSIONER KOPLAN: Thank you.

This morning I explained to Mr. Rosenthal that I intend to use the year 2000 as my base year in focusing on the alleged rapid increase in subject imports. I believe that is consistent with the position I took with Chairman Okun on the brake drums and rotors Section 421.

I acknowledge your reading of our joint footnote differs from my interpretation. I want to give you this opportunity now to make any further argument you want to on this issue, or if you prefer, in the post-hearing. Whichever works best for you.

MR. LOEB: Thank you, Commissioner Koplan. Hamilton Loeb again.

I appreciate your flagging that so prominently in the questioning to both sides. That's certainly very helpful to us in our briefing and our response here. Of course we will respond post-
hearing, but let me just give you the key two themes here.

Number one, if you go that route then I think you still come out the same place under Section 421. That is to say Section 421 not only requires you to look at some form of base year or multiple base years as your reference, and then it says you must take the period most recently adjacent to the moment we sit here before the Commission and determine whether imports are rapidly increasing.

So to say that imports rapidly increased in the year 2001 relative to 2000 and then thereafter flattened out, that still is not a case of "are rapidly increasing imports" as I read the statute, and certainly as I read both the purposes of the statute, the language of the statute, and the legislative history which was referred to in your footnote.

Secondly, I do think the point in the footnote -- I took the point in the footnote to --

COMMISSIONER KOPLAN: Can I jump in for a second on that?

MR. LOEB: Go ahead, I'm sorry.

COMMISSIONER KOPLAN: Thank you.

I hear what you said and I know you said that earlier, actually, but I'd like you if you would to reconfigure the analysis that you have on page 11 of your pre-hearing brief using the BPI data available to under APO, tailored to 2000 as the base year, and provide me with the appropriate modified tables post-
hearing and advise us in detail as to the effect that has on your current position with respect to the issue of rapid increase.

I understand what you're saying, the result would be the same, but I'd like you to quantify it because when you used the tables, assuming that 2000 would not be in that mix, you had some rather detailed tables of analysis that followed that initial argument. So I'd like you to, if you would, to go back and give me these as an alternative so that I can weigh the specifics of what you're saying.

MR. LOEB: We certainly will do that in the post-hearing submission.

COMMISSIONER KOPLAN: Thank you. I'm sorry for interrupting, but I wanted to get that in now.

Go ahead.

MR. LOEB: The second point was just to say that I think the analysis that at least I saw in the footnote as I read it, is the correct one. That is to say the relevant imports for purposes of determining whether a rapid increase has occurred are those that occur after China's accession to the WTO. That accession occurred in December 2001, so as a practical matter as we see it you're looking at 2002 and forward imports for determining whether the increase is occurring at a rapid rate.

Obviously you collect data all the way back in this case to 1998. That gives you context, that gives you background, but our view is that to be consistent with the objectives of the Article 16 of the accession agreement and the statute, that the 2001 imports are outside the period of rapid increase.

COMMISSIONER KOPLAN: I thank you for that. I completely understand your position. I just don't happen to agree with it in terms of interpreting my own footnote.

Thank you, though.

You heard the response of both the domestic industry and Mr. Girard with regard to your allegations that the Petitioner enjoys protection from import competition in certain geographic markets because of what you referred to as the Buy American factor.

I'd appreciate your response to this morning's testimony since you've used that argument as a principal basis to explain away the substantial market of underselling of the five DIWF products that were included in the Commission's questionnaires.

MR. LOEB: Let me, I think we want to hear principally from the importers who know considerably more, have direct experience with Buy America than we do. I have a comment to make on it but I think it would be more useful if the importers respond first.

COMMISSIONER KOPLAN: I would appreciate that. Thank you, Mr. Loeb.

MR. RYBACKI: Larry Rybacki again.

In the United States there are certain areas that we're precluded from selling. I was surprised Mr. Girard, his own union didn't realize that the Pennsylvania Steel Act, it's almost impossible to sell our products in the state of Pennsylvania. I would imagine that McWane has 98 percent better market share in the state of Pennsylvania. There are Buy American provisions in the Department of Transportation. On jobs from coast to coast that are Department of Transportation there is Buy America provisions.

On all military bases, which is a lot of business that goes on in military bases from coast to coast, military bases have a Buy American preference.

So there is a good portion of the market, and there is actually six states --

COMMISSIONER KOPLAN: Can you quantify how much of the market you think that might be? Because the estimate I've heard was no more than ten percent.

MR. RYBACKI: Commissioner Koplan, I think Don Waugaman or Joel said it was ten percent. I think it's 15 percent maybe, 10 to 15. But I think that's a fair number.

COMMISSIONER KOPLAN: Okay.

Thank you. I see my yellow light's come on so I'll wait for the next round. Thank you very much.

CHAIRMAN OKUN: Commissioner Lane?

COMMISSIONER LANE: I want somebody to run through an answer that you gave a little bit ago about how you set your prices. That you take McWane prices and then you set your prices according to that.

Could you just give me an example of how you do that and what the effect is?

MR. MORRISON: I'm Ed Morrison from Huntington, West Virginia, the CI Thornburg Company.

Commissioner Miller, I know Commissioner Lane asked the question and I will answer it, and you asked a similar question earlier that is relatively simple to answer but seemed to get complicated.

Every one currently uses the same list price. From that list price we have, as a distributor, we have multipliers. We have a location in Bolling Green, Kentucky, that has a 29 multiplier from Tyler Union. In Lexington, Kentucky where we also have a branch, our multiplier on Tyler Union is a 31. In Huntington, West Virginia and Bridgeport, West Virginia where we have locations, it was a 31 and was raised to a 34.

Now I trust that tomorrow, after being here today, those multipliers will still be the same as they are today.

Our multiplier from SIGMA is a .275 and our multiplier from Star is a .27. That's the net price of the fitting.

Now on top of that from both Star and SIGMA we would qualify for a ten percent rebate. So if you do the arithmetic, that gives you your bottom line figure.

From Tyler Union up until the time that we voluntarily resigned from the loyalty program we would have received a 17 percent rebate, 10 percent from Tyler Union and seven percent through a buying group.

So if you do the arithmetic, that gives you your bottom line net cost for any item we would buy.

Does that answer your question?

COMMISSIONER LANE: I think.

MR. MORRISON: I'll be glad to expand on it if you need clarification.

COMMISSIONER LANE: No, I think I understand how it works.

MR. RYBACKI: Commissioner Lane, can I help clarify?

COMMISSIONER LANE: Yes.

MR. RYBACKI: If an item is $100, what Eddy was saying, if an item is $100. From McWane it would have been $29, you get the 29 multiplier, so it's $29, less the rebates, which is 17 percent. So it's 29 less 17.

Our multiplier was 275 which is less than McWane, but our rebate to them was ten percent. So it's $27.50 less ten percent as opposed to $29 less 17 percent which is relatively in the ball park. That's how we price.

COMMISSIONER LANE: Okay. So if someone is buying a product from you at your price and somebody buying something from McWane at its price, the same product, is there a difference in price?

MR. RYBACKI: We try to factor in the rebate. With McWane they have different rebates, but let's just say it's 17 percent with somebody. Because our rebate is not going to be anywhere near that, let's say if ours is ten percent, what we try to do is get the net number down as close as we can to McWane's. That's our goal.

MR. REILLY: Commissioner Lane, this is John Reilly. Just to make it simple.

If you're at a 29 multiplier with McWane and you qualify for the 17 percent rebate, you get the low price.

The price of 27.5 or 27, less a ten percent rebate, will be higher than the net price that you'll be paying McWane. If McWane kicks you off the rebate program, the price would be slightly higher than the importer price.

COMMISSIONER LANE: Thank you.

MR. McCUTCHEON: Commissioner Lane? Could I add one thing to that?

COMMISSIONER LANE: Yes.

MR. McCUTCHEON: My name's and McCutcheon. I'm with Star Pipe.

Back to your question is the pricing different. In most cases yes, the pricing is different. Not necessarily lower. Not necessarily higher. There are markets that McWane is below Star Pipe and below SIGMA in pricing. Texas is a perfect example.

If you take into consideration, and I can only speak to Star Pipe and what I'm assuming with SIGMA, but Star Pipe's multipliers less our rebate, McWane's price to the customer is lower than Star Pipe's. They are the low provider in the state of Texas.

So back to your question, is there a difference? Yes, ma'am. There is a difference. Not necessarily always lower.

COMMISSIONER LANE: Thank you.

Mr. Rybacki, I think in your initial statement you were making, you said something about Tyler not being a reliable source for product. Would you mind expanding on that?

MR. RYBACKI: That was not in my testimony.

COMMISSIONER LANE: You're right, It's Mr. G-R-O-N-A-T-E-R.

MR. GROENIGER: Yes, Commissioner, that was me. When I say reliable I mean -- My name is Mike Groeniger.

Is the fact that we rely on service on a continuing basis, a daily basis. We're sending orders from multiple sites and demanding a delivery that allows us to finish the projects.

We are the largest supplier of ductile iron fittings in the state of California and we have a tremendous demand for service. And if we cannot rely on a consistent pricing or availability then we have to designate that manufacturer and non-compliant. Over the past several years with the ups and downs going through Tyler, they have been non-compliant. That's why I say that.

COMMISSIONER LANE: Are you still doing business with them today?

MR. GROENIGER: Yes, on a reduced level, but yes, ma'am.

COMMISSIONER LANE: Are they reliable today?

MR. GROENIGER: At a reduced level, yes, ma'am.

MR. LISOWSKI: Ma'am, Pete Lisowski with Star Pipe.

To add into what Mike was saying as far as reliability goes, Star Pipe and some of the other importers, SIGMA, PCI, we do what Tyler and Union cannot do. WE're smaller and more flexible and more ready to serve the customer and get them the product they need even if it's not 10,000 pounds.

Getting back to pricing, much of what we do, a lot of our fittings that we sell are shorts that maybe the big domestic producer will not get to the customer, but we get it to them. And normally they pay a premium because those customers normally aren't getting a rebate from us.

COMMISSIONER LANE: Okay.

Another few statements were made about the safety record of Tyler, and Mr. Rybacki, that may have been you.

You said that in 1995 Tyler paid $10 million in OSHA fines, that 4,000 people have been injured and nine people have been killed.

Could you give me a timeframe on the 4,000? Were those 4,000 people or just 4,000 incidents of safety violations?

MR. RYBACKI: I do believe those are 4,000 incidents. Those numbers are since 1995 and those numbers came from the Frontline/New York Times investigation.

COMMISSIONER LANE: That's your sole source of the information?

MR. RYBACKI: And other public records that have been listed. From other news articles, Birmingham papers, and Tyler papers and -- It's been from the public record.

COMMISSIONER LANE: Thank you.

That's all I have, Madame Chairman.

CHAIRMAN OKUN: Commissioner Pearson?

COMMISSIONER PEARSON: Thank you, Madame Chairman.

This morning I had the opportunity to ask Petitioners about the flexibility of the world marketplace, so now let me do the same with you.

In the event that a trade remedy is imposed here and there's a restriction on the imports from China, what types of adjustments can we expect to see in the world market and the domestic market? Let's talk a little bit about whether sourcing of imports might change. What would happen to pricing levels in the domestic market? What would happen to market share, that sort of thing? I would love to hear form several of you, so please go ahead.

MR. PAIS: I'm Victor Pais from SIGMA.

Without question in the short term there is always going to be disruption. Let's not sit here and think that fluidity is all night. But that said, this is a basic foundry product and as a long term strategy some of us have already got a diversified production base spreading to India, Mexico, Korea, and some of them even to Brazil. So there are multiple sources.

They're all competitive in their own way. They have, each one has their own advantages and disadvantages.

All these manufacturers were driven by someone like SIGMA or Star. They're not off-the-shelf product which are available like in the case of nails or fasteners or something.

So it depends on the ability of a manufacturer, and we consider ourselves a "manufacturer" because our responsibilities as such, our liabilities as such.

We have garnered over the years with the professionals that we have, over 20-25 years of experience, that we have guided them to produce fittings to AWW standards, and then some. And then some, only because we knew from day one that we had to be better, not just equal.

Things like traceability on every casting to have an outstanding quality record beyond any question. And things like that. And it doesn't cost anything more to introduce these quality measures.

So we already have a base in India, we have a base in Mexico and Korea. Needless to say, there are existing configurations scheduled and should this happen there is going to be a disruption. But inventory of the pipeline helps. And as you have heard from our customers, they have been through this before, the disruption, even within the domestic supply sector. They will work with us. We know this is a long term industry, but in a relatively short time we can get an alternative base going.

MR. REILLY: Commissioner Pearson, John Reilly. Let me try to address some of the market price issues you raised.

I'd kind of like to set some parameters on the analysis because I think there might have been an unspoken assumption by some of the folks who were speaking this morning that the scenario would entail the elimination of imports from China. I don't think that's basically what we're concerned with here.

Strictly as a counter-factual kind of analysis, let's suppose that one took 2000 as a base period. That seems to be a popular base period. That means that the amount of product to be replaced in the neighborhood, looking at the volume of imports over the 2001-2002 and this year, is approximately 10,000 short tons. So basically what you're really asking is how difficult would it be for the importers to replace 10,000 short tons of products by increasing imports from other foundries in other countries where they already have relationships.

My answer to that question is it wouldn't, in the overall stream of things it would not be very difficult at all. It could probably be pretty well accomplished within the period of a year or so. Considering that the importers have in place product in the pipeline and also have in place inventories which they can use to sustain themselves for a period of time until production can be ramped up.

Those countries where they do have relationships, do have foundries that are competent to produce the specific product.

The other point I think which is important and perhaps some of the importers will elaborate on this, the price that they will pay is for the imports from the third countries, is not necessarily substantially higher than the price that they would pay for imports from China.

For example, there's a general consideration that India is in fact cost and price competitive with China in this particular field in general. If you give them additional orders and they can produce at a higher level of utilization and increase their efficiency, you'd expect their costs to go down as well.

Given this kind of a scenario and the substantial presence of non-subject imports in the marketplace, and the substantial availability of non-
subject imports, I would expect the price effect from that angle alone to be relatively insignificant.

Moreover, the Commission staff has estimated that the elasticity of supply in the United States from the domestic producers is highly elastic to price. That means it would not take a significant price increase to draw a significant additional supply into the marketplace. There goes the assumption that we're going to get rid of Chinese imports and get prices up. It just doesn't work.

MR. McCUTCHEON: Dan McCutcheon, Star Pipe.

I just wanted to reiterate what John said. I believe that it would take some time, it would cause more work of course on our part to shift capacities. But we could do that. WE are also established in other countries with people and relationships.

There's a parallel there, I believe. What happened between 2000 and 2001? It took us time after the antidumping, it took us time to reestablish ourselves, to set up our QA and our QC programs, to bring in test product and test it and put it through the throes that we have to do as manufacturers.

So I do think it would take some time. Would there be changes in the price to the consumer? Very unlikely because our price is heavily determined right now not on country of origin, it's based on the market and what McWane is doing in pricing and where the net price is to the customer.

MR. RYBACKI: Commissioner Pearson, I want to make a point that, I may be the only one able to make it here. Actually two points.

One is, you keep mentioning other countries. Everybody mentions other countries and nobody mentions the United States. Why not source it there?

I'm one of the only people here that tried to build a foundry in the United States. I was associated with a company and we tried to build a foundry in 1987 in Warrenton, Georgia. Because of OSHA, EPA and other things, other blockades, we were not able to complete our mission.

The reason I bring this up is because I want to quote Mr. Girard today who said, "On the best of days it is a hot, dirty, and dangerous business to be in." On the best of days.

When I first joined SIGMA in late 1990, early 1991, one of the possibilities for our sourcing was the good old USA. We found because of continued problems in the environment and safety conditions and so forth, that the foundries were no longer able to keep up with the standards. That's the reason why we started sourcing 100 percent overseas. We actually had an ongoing foundry at the time, SIGMA did, affiliation with Russell Pipe and Foundry in Alabama. But it could also not keep up with the continued pollution problem, the worker problems, safety problems, and as a result we decided it was best for us to go overseas. So that's one point I think I wanted to make.

Number two, as far as pricing. What would happen if in fact the commission did rule and throw a 95 percent number at us? Obviously we would be forced to be nimble enough to go other places, whether it be the countries talked about today -- India, Brazil, Mexico, Korea, and there are others, by the way, that we could go to in a heartbeat that could be competitive with China.

But what would happen to the marketplace? Well, you saw the great disparity today, over 40 percent difference I think it was from Mr. Waugaman or Mr. Blair that said that some of the market share at 29 and others are at a 48. You see a lot of 48's. You might see a lot of 55's and 60's and 62's.

If we're gone and China's gone as a major supplier to this industry, you're going to see tremendously higher prices every where, not only to our friends the distributors here, but to the ultimate end user and the consumer.

MR. REILLY: Commissioner Pearson, my comments not withstanding, my confidence in my analysis stands.

I do not believe that there would be significant price increases in the absence of imports from China. Once the logistical issues associated with sourcing from other locations had been sorted out.

In addition, the high elasticity of supply from the domestic industry that's indicated by the staff report, would also help to keep prices down.

COMMISSIONER PEARSON: Thank you. with the red light --

MR. RYBACKI: I just want to make one last -
- I agree with Mr. Reilly. The difference is I said short term. The short term before we could get over to and get our full production over to India and the other countries, Mexico and so forth. The short term prices would go up and then they would stabilize.

COMMISSIONER PEARSON: Thank you all very much.

With the red light on let me turn it over to Madame Chairman.

CHAIRMAN OKUN: Let me ask, well whoever want to answer. As I listened to your testimony and responses to questions in describing the environment you operate in and kind of the focus that I've heard from all of you on McWane and the rebates and the loyalty program and I think as many of you have described, you've used words like dominance and a number of things about McWane.

Why in a market period, and again I'm focusing on the most recent but I think I heard Commissioner Koplan looking at 2000 as a base year. Why wouldn't McWane have been able to force rising prices into this market when there was increasing demand and rising costs from the domestic producers? That's a disconnect for me in listening to this.

If McWane is driving all this, why isn't it driving it up in this market?

Back row. Mr. Pais?

MR. PAIS: That's correct. Victor Pais from SIGMA.

In a way I wish to answer Commissioner Okun's and Commissioner Miller's similar concern. If McWane had a business model which quantified a certain level of business, just like any other business, and went about their marketing and other management plans to reach those goals, we would not be sitting here.

All this has happened because their model is just one thing. It's 100 percent market share.

If you ask not just us for on the other side of the equation, but customers and anyone in the industry, if you ask one thing about McWane they would say market share. They are so driven by it.

So when you have this goal or desire or obsession about 100 percent domination, so you could control the distributors, you can charge whatever price you want, any time you want. Anything less is not good enough, and this is the reason where they have got the three big chains as many of us have attested and as the facts bear out, they pretty much have the business, they've had it for the last several years. In spite of that they gave a preventive 17 percent, just to lock them up, out of any kind of imaginary erosion to the smaller suppliers. And time and again we have said none of us have the capacity even to manage them.

Now they have the fights with the smaller customers. They depend on McWane even more. And you mentioned earlier about what is the percentage of the domestic preference. Theoretically it could be ten percent or eight percent or 20 percent, and who knows? Because a lot of towns, hundreds of towns because of various reasons have specified domestic needs.

But all these distributors have multiple locations. They cannot have dual inventories. So if they know they cannot have access to the domestic, however small the content may be, whither it's five percent or ten percent, then they fear losing the access to their whole product, very critical product line.

That is the reason, McWane knows that, and in a way just to prevent us from growing even by one percent. And unfortunately that's kind of backfired because it has put such a lot of pressure and mostly on themselves.

You can see, 17 percent of let's say $100 million, that is some $10 million they are giving away for no rhyme or reason.

CHAIRMAN OKUN: Okay, I'd welcome others to comment on that as well. Although I guess I would just comment, you focused on the market share, and again we're talking about a growing market so to that extent I view market share a little bit differently.

But U.S. shipments have declined as well. I'm having a hard time seeing -- Again, either you could say all right, in this market why didn't they give price increases if they were the dominant, if they were controlling it in the way that it's been described. Or why didn't they lock up big shipments. What I think you're describing is market share, but I don't see that in the data either. I guess that's what I'm still trying to understand, what you're describing with this data.

Mr. Reilly, and then if there are others.

MR. REILLY: There is a nature of pricing, a type of pricing called limit pricing. Limit pricing is a situation that can take place when there is a dominant producer that does face competition. That producer will price to prevent new entrants from coming into the market and to prevent competitors already in the market from expanding. And basically limit pricing is one of the functions, by the way, of price leadership. Or one of the signs of limit pricing is price leadership.

When one is price cutting and becoming aggressive on price, one then engages in what I will call cut-throat competition and that is the kind of competition that discourages competitors from remaining in business and attempts to drive people out of business.

I don't think that McWane has been engaging in that kind of competition with respect to its foreign competitors, but I do believe that the data show that there is limit pricing by McWane taking effect.

The other point has to do with rising costs -- You raise the question with rising costs why can't they simply increase prices?

There are two kinds of cost increases. One is factor cost increases. For example, the price of scrap goes up, the price of other raw materials goes up, the price of electricity goes up. Those are costs that are beyond the control of a producer and the producer would attempt to increase price to pass on those costs. Within an industry, even among competitors, if those costs all increased there probably would be a general price increase.

As I will explain in more detail during my in camera testimony, that doesn't seem to be the situation we have here. Those kind of cost increases don't seem to be the issue.

CHAIRMAN OKUN: Were there others who wanted to comment on that question of why, if this is the situation, that McWane either can't get price increases or doesn't have growing shipments in a growing market.

MR. McCUTCHEON: Yes, ma'am. Dan McCutcheon, Star Pipe.

CHAIRMAN OKUN: Yes.

MR. McCUTCHEON: A couple of quick points.

First of all, on the pricing issue why not use the control that they have to move up, and I'm as confused as you are on that topic. I've wondered that ever since I've been in the market. They clearly dominate. I would challenge someone to figure out when they moved prices up did they lose business, and when they moved prices down did they gain business. I don't think either of those things happened.

I'm confused.

The only thing that I've been able to come up through the years is their desire to dominate and control. It's the only logic that I've ever been able to come up with. I've asked people year after year why would someone behave this way? Because they're clearly, clearly giving away tens of millions of dollars year after year. I'm confused.

So I don't have a real good answer for you, but I've been confused by the same question for years.

Secondly on the volume question, I'll make it quick. Is the light on?

CHAIRMAN OKUN: That's fine.

MR. McCUTCHEON: I'm using Figure 4 that we all looked at this morning that was passed out by the Petitioners. There is not any volume numbers or unit numbers on it so I don't know exactly what the declines are, but I do have a comment for you.

I said it in my testimony, not as directly as I'm getting ready to say it, but McWane lost some customers in the last couple of years that had very little to do with China. Substantial customers that chose to source their product in other countries on their own. We mentioned it but I'll bring it up again. American Cast Iron Pipe chose to drop McWane and go to Brazil. That had nothing to do with China.

U.S. Pipe chose to make some rather large purchases from Brazil. That had nothing to do with China.

And Griffin Pipe chose to set up their own foundry in Mexico. That had nothing to do with China.

All three of those volumes, substantial volumes, substantial tonnage, all came out of McWane's revenue. It did not have anything, or very little, to do with China.

I think that's the reason there's a blip on the screen, but without the units I can't put two and two together.

CHAIRMAN OKUN: I appreciate all those comments. I see that my red light is going to come on so I will turn to Vice Chairman Hillman.

VICE CHAIRMAN HILLMAN: Thank you, and I would join my colleagues in thanking you very much. It's been an extremely helpful testimony.

I guess I'm going to try one last time because I obviously share a lot of my colleagues' concern. I mean I've heard you loud and declare all describing uniformly, I would say, McWane as the price leader in the market. I presume by that you're saying they are the low price leader in the market, not the high price leader in the market.

And yet I'm struggling because I have a record in front of me which we priced five products and got apples to apples comparisons of five products. Again, I don't want to go into the specific numbers but it's fair to say that in all of those comparisons the Chinese price was considerably below, not above, considerably below the domestic price.

So help me understand why do you feel, to the extent that you can. why do you think the domestic product is the low-price product in the market when we don't, again, we don't see that in any of the data before us.

So anybody that can help me understand how it is that you feel that that's what's going on in the market and it's not what we see.

MR. LOEB: Vice Chairman Hillman, can I just comment on that first before we hear from the importers?

I think it's very important, these importers don't know what the pricing product data shows so let me just state for their, I'm not going to state that it shows, but just let me emphasize that the pricing products are national data on each product. You've heard from these witnesses that there are markets in which the imports are competitive, they can compete, they can get there, they compete. Bowling Green has a 29 multiplier, and there are other markets where the multiplier is in the high 40s. Including markets where there is not going to be import competition.

So you are looking at pricing graphs which show a combination of pricing results where there are competitive pricing being reported and non-competitive pricing being reported. I think if you were looking at the same graphs, eliminating the areas where there's not any import competition what you'd see is the McWane bar being quite close to the import bar. If you looked at the areas where McWane has no import competition, you'd see the McWane bar at the top of their multiplier list. And what you have in front of you is the aggregated numbers from that, which remember, you're dealing with a producer here that, as Mr. Green testified himself, dominant, very high market share percentage, and imports that are well under the 20 percent level.

So when you blend all that together you're looking at a chart that has blended effects that's not describing where these people live every day in the markets where they compete.

Having said that, let me ask the importers to elaborate.

MR. SAHA: This is Steve Saha from PCI. I agree with Mr. Loeb.

McWane is not the low price leader, by the way . They are the high price leader. And where the importers are basically in the regions, where McWane has kept the prices low, they have kept the prices so depressed that we have no other choice but to be at their level.

So if you take the total market, if you take the entire U.S., 100 percent, if they are 60 percent at the higher multiplier where imports are not even competing or in very little quantity, and if you take the rest of the market where imports are big, where they have kept the prices down, the overall import prices does come out way lower than compared to McWane's overall pricing nationwide.

VICE CHAIRMAN HILLMAN: But you're saying in a particular market, is it your view that the McWane price is higher than or lower than the import price?

MR. SAHA: In many parts of the country the McWane pricing is way higher than any import pricing. And in some parts of the country where inherently the importers have been strong, for example Texas, Georgia, Florida, California, Tennessee, McWane has lowered the prices, have kept the prices depressed for the last five years that I know of --

VICE CHAIRMAN HILLMAN: Have they lowered them below the import price?

MR. SAHA: In some cases they have lowered it below the import prices. As of today, as we speak, PCI's pricing in North and South Carolina is at 30. If I remember correctly, SIGMA was also at a 30 or is at a 30, where McWane is at a 29. I'm sorry. That's Tennessee. At 29, and Mississippi.

VICE CHAIRMAN HILLMAN: Mr. McCutcheon?

MR. McCUTCHEON: Yes, ma'am. Dan McCutcheon, Star Pipe. I'm going to try to say the same thing but in just a little bit different way.

There are large parts of the country that we do not participate for a variety of reasons. That was not, in my view, I don't know exactly how the numbers look, but what I believe is there was not a weighted average taken.

If you were to segregate the parts of the country where importers compete and parts of the country where importers do to compete, the disparage between the number is very significant.

If you were to go to the northwestern part of the United States. If you were to go to Washington, Oregon, Montana, et cetera, importers do not participate in that part of the country for a variety of reasons. The distributors in that part of the world have chosen to, as a whole almost, buy from McWane.

We don't participate there. Consequently their multiplier is a 48. We're not there.

If you take that quadrant of the United States that may be 20 percent, and you use a weighted average and mash it together, then our numbers would be closer.

But if you take all parts of the country where we're not and don't use a weighted average, which I think is what has happened here, it gets confusing because it shows a large difference in the average unit price.

Did I make it worse?

VICE CHAIRMAN HILLMAN: No, I understand what you're saying. I'm not sure, I'm going to have to think about what that tells me in terms of the degree to which it is import competition that is pushing the prices down.

If you're saying that in the markets where there are no imports the prices are high and in the markets in which there is import competition the prices are low, it is suggesting to me that it's the imports pushing the prices down more so than something else.

But in any event, I heard your answer, I appreciate it.

I may want to go to a little bit of a different issue since we've spent a lot of time on this price issue. That is to try to understand truly, a lot of you have commented, particularly in response to Commissioner Pearson's question, on this issue of how readily could you switch to other sources. Which makes me want to make sure I understand how easy it is to produce product for the U.S. market.

It's my understanding, and this is where I need some help from you all in the industry, that everything that's sold in the U.S. market must be to AWWA standards. That's correct? Okay.

But are there other markets in which you sell fittings that are not made to AWWA standards? ISO standards or something else?

MR. RYBACKI: Commissioner Hillman, yes there are. We do participate in markets that are ISO, international standards.

But getting back to your point on how fast and so forth, every one of us, we've been through this before. SIGMA's been around, Star's been around, so we've been around a little longer than PCI, so we've been through this before. As a result, back in the '90s when we faced this, then it was an ADD type situation, which our friends were unsuccessful. We moved our production just in case something were to happen.

So you ask how long would it take, it would take -- To really run the way we're running now it would take a little bit of time but not a lot because we have duplicate patterns other places already. My friends at Star Pipe have duplicate patterns other places already.

VICE CHAIRMAN HILLMAN: Is that the primary distinction between something made to an AWWA standard or an ISO standard is the pattern itself?

MR. RYBACKI: Yes, it's the pattern. It's just the way the configuration is. ISO is used in different parts of the world, mainly in Europe, uses a lot of ISO. Some of the South American countries and Middle Eastern countries use ISO, international standards. We follow the AWWA.

VICE CHAIRMAN HILLMAN: Does any other market follow the AWWA besides the United States?

MR. RYBACKI: Canada is AWWA.

VICE CHAIRMAN HILLMAN: So basically you use the same equipment, same employees, same everything. It's just the mold itself or the pattern itself that would be different --

MR. RYBACKI: You're absolutely right.

VICE CHAIRMAN HILLMAN: That's it. No other distinction.

MR. RYBACKI: That's right.

VICE CHAIRMAN HILLMAN: So it's switch in one mold, switch out another one and you've switched from AWWA.

MR. RYBACKI: Yes. WE have ISO patterns at the same place we have AWWA. ISO quantities are much less because those are, we only ship those to Europe and so forth.

VICE CHAIRMAN HILLMAN: That's very helpful.

MR. McCUTCHEON: Ms. Hillman, Dan McCutcheon, Star Pipe.

Just one quicky to add onto the back of what Larry said. It takes time. It would in my view, it would take us a year maybe longer to transition. WE could transition, we do have duplicate patterns, but there's more to it than duplicate patterns. Testing, quality control. There's a lot more that goes into it before either one of us would bring the product in and sell it. It's not instantaneous.

VICE CHAIRMAN HILLMAN: But presumably there is non-subject imports as we've heard from Brazil, India, Mexico, Korea I believe were the countries that were mentioned. Presumably all of those are already being made to AWWA standards?

MR. RYBACKI: Yes, ma'am.

VICE CHAIRMAN HILLMAN: That's very helpful. Thank you.

CHAIRMAN OKUN: Commissioner Miller?

COMMISSIONER MILLER: There's just one issue I want to clarify a little bit.

I think Mr. Rybacki, you may have just referred back to it again.

In your initial testimony there were some references to the import increase, and this may have been you, Mr. Reilly, as much as anything else. The import increase that occurred after the antidumping duty was, the order was lifted.

I wonder if the industry, and if I'm right and you just referenced it, Mr. Rybacki, or if SIGMA has any experience I would welcome --

MR. RYBACKI: I think the testimony was from Dan that referenced after the duty.

COMMISSIONER MILLER: I just want to clarify the circumstances and your view of the circumstances. As I understood it in part you discounted the increase in imports after 2000 because it was the result of the lifting of the antidumping duty order. Did I hear you correctly on that? Is that what -- Mr. Reilly, did you make that or was it somebody else?

MR. REILLY: No. I think I simply noted that the increase between 2000 and 2001 followed the lifting of the antidumping duty and that subsequently imports became quite flat.

COMMISSIONER MILLER: All right. I'm not sure there's anything I need to clarify about this. I understand what Petitioners say in terms of why they didn't pursue it. I just thought you were referencing it in some way as something that was relevant and I just wanted to make sure I understood if you thought so.

Mr. McCutcheon, was there something you think we need to be aware of with reference to that?

MR. McCUTCHEON: I'm not sure I'm answering your question, but --

COMMISSIONER MILLER: I'm not even sure what my question is.

MR. McCUTCHEON: I'll try to answer what I think I'm hearing.

COMMISSIONER MILLER: Maybe I should ask this question. Was the antidumping order effective in 1999? As of 1999, did any importers here have experience with importing under that antidumping order?

MR. McCUTCHEON: Was it effective to keep us from --

COMMISSIONER MILLER: Did it restrain imports?

MR. McCUTCHEON: Absolutely.

MR. SAHA: Steve Saha from PCI.

I agree with Dan, but in some ways it was not very effective, in the way that SIGMA, the largest importer, was continuing to import because they won the ADD hearing. Star Pipe had shifted completely to Brazil at that point. So really they had no interest of going back to China at that point.

So the total imports coming into the country did not decrease by one single fitting, to the best of my knowledge at that time.

MR. LOEB: Commissioner Miller, could I just add a point on that?

COMMISSIONER MILLER: I'm not sure this is particularly relevant. I just thought I'd heard some comments about it in the course of these discussions so I wanted to make sure I understood if you felt it was.

MR. LOEB: I have a view that it does have some relevance, not a huge amount but the following relevance.

The principal Chinese importers were down to zero in terms of the rate that they had in annual reviews. Therefore they were able to bring their material in without having any dumping duty assessed on it and the Petitioners have said we just didn't think it was worth bothering over at the Commerce Department and before the Commission to try to defend that order given that it really was not helping us very much. The main producer had gotten down to zero.

I think what you heard Mr. McCutcheon say earlier was for everybody else there was 137 percent, one of those wonderful kind of best information type big time rates. So nobody else could come in because if you started coming in, even if you were not really dumping and it was going to get down to zero, you'd have to float two or more years worth of paying those huge duties before you got an annual review that would drop you down.

So it was an impediment in the sense that people who otherwise could have been in the market and might well have been in the market the same way the other large Chinese producer was in the market with no dumping rate at all, simply had the impediment of the way the statute works as a deterrent to them.

I think when you hear Mr. McCutcheon say it did work as a deterrent, that's what's been explained to me as to where the deterrent effect of that order was. When the order went away in 2000 then after a period of, when they did their QC and so on then you saw the increase and the increase shows up principally in 2001. That's one of the reasons why I think even if Commissioner Koplan is going to look at the year 2001 as part of the increase, there's not a causation element there. It's really a response to the Petitioner's failure to keep that order in place. They made that choice themselves.

COMMISSIONER MILLER: I have no further questions. I appreciate all your testimony. Any other questions I may have will arise in the in camera session. Thank you.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madame Chairman.

I don't want to beat this to death, but Mr. Rybacki, I just want to come back for a moment to the Buy American testimony that you gave in answer to my question on my first round.

I just want to point out to you, and I don't know that you would be necessarily aware of this, that pages 32 to 35 of Mr. Rosenthal's brief provides details with regard to Buy America provisions. Most of that is not bracketed. It's headed "Buy America requirements and/or preferences do not shelter the domestic industry from import competition."

Frankly, when I called on Mr. Girard I was curious as to whether he would be providing any additional information not otherwise contained here. So I would just say to you that you might want to take a look at that.

Also in Exhibit 3 to the Petitioners brief, they provide a detailed analysis of jurisdictions claimed by PCI to have state-wide Buy American requirements. Pennsylvania, which you mentioned, is also mentioned in the brief as are other states.

So my request is simply if you can get together with Mr. Loeb and perhaps, Mr. Loeb, if there are any additional citations other than what I've looked at in Petitioners brief, if you can provide that post-hearing I'd appreciate it.

MR. LOEB: Commissioner Koplan, we'd certainly be happy to do that. I would just emphasize, because I know you did ask this question earlier, I don't know if you were referring to page 36 of our pre-hearing brief.

We put in Buy America for two reasons. One because the staff report does include a specific discussion of it at page B-10 and that's what we cited when we wrote a Buy American factor, we were citing the staff report's discussion, not anything that came from somewhere outside the Commission.

Secondly we've emphasized that the geographic protection that that would provide, whether it's limited, ten percent or whatever the range is, plus as we say on page 36, the other conditions of competition. By there I'm referring to the point I made a minute ago to Commissioner Hillman that there are many sectors where there is no competition from the imports. I'm saying that might explain why when you look at the pricing products you see what you see.

Thank you.

COMMISSIONER KOPLAN: Thank you for that addition. I appreciate it.

Let me stay with you if I could, Mr. Loeb.

You've heard the detailed questions that we asked Mr. Rosenthal this morning about his remedy request, and we now have far more definition to that proposal than was contained in the pre-hearing brief.

I would make the same request of you that I did of him. I don't expect that you would agree with any of what he said on this, but I'd like you to quantify the effects of what we have before us now as best you can, realizing that I'm going to get additional information post-hearing. But if you could quantify its effects for purposes of the post-hearing, take into account not only the effect it would have on the domestic industry but also on the Chinese Respondents.

Of course I realize the Commission must first finding the affirmative with regard to injury and causation. But in the event that that happens I would no longer have the opportunity to make this request of you because this is the time for me to make it.

MR. LOEB: Commissioner, I understand that. We'll do our best in the post-hearing submissions. Of course all the information we have is what's essentially in the confidential record that we've gotten from the Chinese Respondents, they don't have the perspective on the market that might assist somewhat in that. We'll do the best we can with that.

I would say --

COMMISSIONER KOPLAN: I'm asking you because you do have access to the proprietary information.

MR. LOEB: Right. Obviously that's what we will use in making our best effort there and that's obviously going to be a task for Mr. Reilly, sitting to my right.

I don't want to use your time but I do have two points that would respond to the specifics that you asked Mr. Rosenthal related to his remedy proposal that I think are worth making.

I can --

COMMISSIONER KOPLAN: I didn't hear the last thing you said. You have two what?

MR. LOEB: Two points that relate to the remedy proposal to the questions that you asked Mr. Rosenthal when he responded. So I can make them now or I can make them in closing, but --

COMMISSIONER KOPLAN: You can make them now if you like.

MR. LOEB: Thank you, I appreciate that.

Point number one is that you asked how long would any remedy last, and I think he told you five years.

COMMISSIONER KOPLAN: That's right.

MR. LOEB: I would just point out that the WTO safeguard agreement specifically limits safeguards measures to four years maximum.

COMMISSIONER KOPLAN: I don't think such a limit applies to 421.

MR. LOEB: I don't know if it does apply

but --

COMMISSIONER KOPLAN: I don't believe it does.

MR. LOEB: I would suggest that there's some good reason why that's in the WTO agreement and I think that would be pertinent to any evaluation of what would be an appropriate length.

My second point is, I'd just like to remind the Commission that what you do if you're an officer at USTR when you have a truly horrendous trade agreement violation is you say to the violating country, hey Japan, you haven't kept up with your bargain to let our automobiles into your market. We're going to put a 100 percent tariff on you and that is going to shut you down. That is going to shut out imports because we calculate at the U.S. side that the trade that we've lost because of your failure to abide by the specific agreement is X million. Therefore we're going to use the eye for an eye principle of international trade law. We're going to retaliate against you and eliminate X million of your incoming trade. The way we're going to do that is by putting 100 percent duty on your imports of Lexus luxury vehicles, for example. That's the 1995 example. That's what 100 percent duty does. It shuts down imports. Everybody knows that.

In this case you're dealing with a statute that says the remedy can only be that which is necessary to restrain the market disruptive effects. It cannot be a remedy that will eliminate all imports. It can only be a remedy that will eliminate effects of that rapid increase that the Commission finds.

So the notion that you could do a remedy of the kind that Mr. Rosenthal has proposed and do it consistent with the statute and/or consistent with the WTO agreement strikes me as entirely impractical.

MR. REILLY: Commissioner Koplan, I'd like to add one analytical note about the 100 percent tariff being very close to a 95 percent tariff.

I've looked at this and we'll provide some detailed calculations in our post-hearing brief, but my conclusion is that the tariff as requested would be preclusive. It would essentially eliminate imports from Japan from the United States market. It would also make alternative sources of supply in India, Korea, Mexico and so forth significantly more price and cost competitive than the Chinese, much to their benefit.

I think you'd find that there would be a significant fill-in behind the eliminated Chinese there.

We'll elaborate in our post-conference brief.

COMMISSIONER KOPLAN: Thank you. I would just point out to both of you that I did remind Mr. Rosenthal that he used the term practical several times in discussing his remedy and I had a sense that he wasn't finished with his remedy proposal yet. So I'm sure that I'll be seeing some additional detail on all of this.

MR. REILLY: Mr. Koplan, may I ask you a question? Does that qualify as going further down the yellow brick road?

(Laughter)

COMMISSIONER KOPLAN: Possibly.

I have one more for you. It's always good to see you, Mr. Reilly.

You've heard the response of the industry witnesses to the argument made by Pipeline Components Inc. at page nine of your pre-hearing brief, that the domestic manufacturers consider DIWF a secondary product merely used to complement their sales of ductile iron pipe and other waterworks. PCI argues that it is common knowledge in the industry that ductile iron pipe is a major if not the major component of each company's product line. Each company sells a full menu of water distribution components.

That's at page 15 of the brief.

The domestic industry this morning told a very different story on that. I'd like you to respond to that in as much time as my yellow light permits.

MR. SAHA: Steve Saha again from PCI.

PCI does a lot of treatment plant jobs which, and we only sell to distributors like Ed Morrison or Groeniger Supply.

When we sell jobs through this distribution they are constantly competing against Clow, U.S. Pipe, that sell directly to the contractors and that package their pipe, the valves and the fittings together. And any job which is more pipe intensive, valve intensive, we end up losing those jobs to them. That was my point.

COMMISSIONER KOPLAN: Thank you.

MR. BOGARD: Commissioner, this is Lawrence Bogard From Neville Peterson. I recognize the red light's on but can I just clarify that for one second?

COMMISSIONER KOPLAN: My colleagues are saying that you can.

MR. BOGARD: Thank you.

The reason I wanted to do that was because I think that while you correctly characterized this morning the argument made at page nine of our brief, that wasn't the argument that was addressed by the domestic industry. They very clearly were reacting to an argument we didn't make which was I believe the idea that they were tying product. That I think Mr. Waugaman denied vehemently that his sales people had ever demanded that people buy Product A in order to get DIWF, and that was not the argument clearly we made at page nine of the brief.

So to the extent that you're observing that you heard a different story this morning I'd say that's because they were addressing a different question.

COMMISSIONER KOPLAN: Thank you.

And I thank you, Madame Chairman, for letting me conclude my questioning.

CHAIRMAN OKUN: Thank you.

Commissioner Lane?

COMMISSIONER LANE: Mr. Reilly, in response to a question by Commissioner Koplan you said that the 95 percent tariff would preclude imports from Japan. Did you mean China?

MR. REILLY: Yes I did, I misspoke. And thank you for the correction.

COMMISSIONER LANE: I only understand what people say and sometimes I wasn't sure whether you really meant Japan or whether you meant China.

MR. REILLY: Suddenly I was back in the late 1980s. I'm sorry.

COMMISSIONER LANE: Thank you.

COMMISSIONER KOPLAN: Thank you, Commissioner Lane.

COMMISSIONER LANE: Now I have a real question.

I want to make sure that I understood a bunch of the answers that we heard earlier about pricing.

From looking at the staff report it's my understanding that the domestic industry and the importers sell most of the product through distributors or what's called waterworks houses. Then the additional people today who are the actual distributors, and that includes the Huntington Company and Mr. Groeninger and Mr. Lindquist.

Now when you were telling me about the prices and how you do your prices and based upon the McWane list and then doing the factor, is that pricing done to your ultimate consumer or is that how you get what you pay for your product from the importers and from McWane?

MR. MORRISON: Ed Morrison from CI Thornburg.

Those numbers we went through are our net costs to us the distributor. We mark up, use a different multiplier to sell to the consumer, to the contractor or the municipality.

COMMISSIONER LANE: So that's the price, the price you were talking about earlier is what you would pay if you bought your product from either McWane or from SIGMA or Star?

MR. MORRISON: Correct.

COMMISSIONER LANE: Thank you.

Madame Chairman, that's all I have.

CHAIRMAN OKUN: Commissioner Pearson?

COMMISSIONER PEARSON: Just one, perhaps quick.

Respondent Beijing has suggested that the Commission should look at average unit values rather than product specific pricing data in order to determine underselling.

How can we tell what influence changes in the product mix might have had on average unit values? Is there anything in the record that would indicate that product mixes of both the subject imports and the domestic like product were stable over time?

MR. REILLY: Commissioner Pearson, John Reilly. Thank you for asking that question because I would like to put some information on the record now.

The Petitioner, McWane, testified at the conference, the critical circumstances conference, that the product mix has been stable during the period of investigation. I have also conferred with the various importing companies and they have indicated that their product has also been stable throughout the period of investigation.

The second issue is whether there's a substantial identity product within that mix. Are they all on the same segment and so forth?

The bread and butter product for both McWane and the importers are compact fittings in the under 30 inch category, actually under 24 inch, with the vast majority of product moving in 12 and under.

The profile of the importers and the profile of McWane in that particular segment is quite similar.

So we do have a situation in the AUVs of very similar products and very stable product mixes.

COMMISSIONER PEARSON: Thank you.

Madame Chairman, back to you.

CHAIRMAN OKUN: Maybe I could just follow up on the AUV question, Mr. Reilly. I heard the response and I did want to hear that because I spent some time on it this morning with Petitioners.

But even if we were to look at the AUVs as they've been argued in terms that this somehow shows that the pricing is, what it means for underselling.

I look at those figures and you still -- we can't talk about the specific figures, but it doesn't seem to me that it shows there was no underselling by the Chinese.

MR. REILLY: I'm going to be previewing a little bit what I'll be saying during the in camera session. Part of my discussion in the in camera session will be on the dynamics of competition and what's comparable to what.

Actually in order to get comparable AUV data you have to break the data down somewhat. I'll go through that in camera.

CHAIRMAN OKUN: Then in light of that, we can just leave it for in camera on that.

Another question that I'm curious about, having heard the discussion about the non-subject imports again. When I look over the questionnaire data that we have here, it appears to me that we have pretty complete coverage in this room for both subject and non-subject imports currently, for what's currently coming in.

I wondered for those who have noted today that they sell both subject and import whether they could talk about both the prices, let's take Brazil, India, whatever you want to pick, what those prices are coming in are relative to the Chinese. Then what you sell those products for, whether it be Chinese, whether those prices are different or not.

Can anyone help me out on that here? Mr. Rybacki?

MR. RYBACKI: I would just echo what Dan McCutcheon said. If it's from Brazil, if it's from -- which we don't get from Brazil. WE used to a little bit but not any more. But whether it's from India, Mexico, Korea, China, we have no distinction and I don't think our friends at Star or PCI, there's no distinction. They're sold in the marketplace at the same price.

CHAIRMAN OKUN: How about what are they purchased at?

MR. RYBACKI: They're purchased at a little different price depending. With Korea being high and India and China being on a par. Mexico and Korea being a little higher and India and China being on a par, relatively close.

CHAIRMAN OKUN: Any of the other distributors want to comment on that?

MR. SAHA: Steve Saha from PCI.

We are buying from China and India, and India, as a matter of fact, is probably slightly lower than China.

CHAIRMAN OKUN: Lower when it comes in. How about your prices for what you sell it at?

MR. SAHA: WE sell it at the same price.

CHAIRMAN OKUN: Okay.

One final note on the period and Mr. Loeb I just wanted to go back to you on what data we're looking at.

One of the things that had struck me when I read your argument about what period we should be looking at, was this projection of the 2003 data. And I was trying to look back at some of the other cases we've done ever, where if we have a full year of data, why we would ever rely on projected data. In other words we have full year 2000. We don't have full year 2003. Regardless of what the correct period is, that concerned me and I wanted to give you a chance to address that here.

MR. REILLY: In terms of the projected import figures, for example, I really don't think it's necessary to project subject imports for the full year 2003 because we do have half year data for 2002 and half year data for 2003 and basically what it shows is there's been no increase. That's not a projection, that's the fact. Subject imports during the first half of 2002 were at 13,800 tons. During the first half of 2003 they were 200 tons higher. Basically I think you can conclude that through the end of the period of investigation, from 2001 through the end of the period of investigation, imports in fact have been flat.

Now where you might get into issues of projection is on issues of threat of injury. The Chinese exporters, for example, producer exporters, have been requested and have complied with projections of what they expect to ship during the latter part of 2003 and also into 2004. I believe those projections are relevant for threat of injury. As in all cases.

CHAIRMAN OKUN: My final point, Mr. Flicker, this would be for you on, I always have one legal argument I get to take issue with I think for everybody. And that was, I heard you make the case of whether this should have been a 201 or whatever. What is the legal relevance?

I can sit and debate that with my colleagues of what kind of case law are we going to face, or is the industry going to come in on a 421 or a 201 or antidumping countervailing duty. But my job as a Commissioner is not, I don't think, my view is we don't have a legal right to second guess what they come in on. We have the facts before us and we say do they meet the statutory guidelines for the 421.

So I wanted to give you a chance to address that argument again. It seemed to me you were trying to say that was somehow relevant to how we viewed this case.

MR. FLICKER: I think there are two legal bases in addition to the fact that what we have here is the ability to cherry pick, but let's talk about the legal issues.

First, the statute itself does require that for presidential action you must have a circumstance in which a remedy would be effective in remedying the problem. That's actually I think in Subsection A of Section 421. The definition of when a President can take action requires not just the elements of rapid increase in the constituencies of market disruption but also that the President be able to take action to impose a remedy which would in fact be effective in remedying the injury.

So I think that there's actually a statutory basis and definition in Subsection A of 421, right out of the box that says you have to look at whether or not in fact you've got a circumstance or condition in which you could remedy the alleged injury through the relief that's being asked. That's number one.

Number two, this has to be set in the context, we believe, of the WTO non-discrimination mandate. Where you have a circumstance in which you're trying to essentially punish one country, one source, because you have a statute that allows you to do it. Yet there's another statute there that would essentially be non-discriminatory. I think there's an obligation to follow the non-discriminatory statute, especially where there's a little bit of a higher standard on you to be able to meet the non-
discriminatory level. Otherwise what you'll have is a constant state of essentially being able to pick on and pick off China first, and then go after the other imports. We think that would be a violation of the WTO non-discrimination principle.

Finally, I think you have the practical issue which is that the statute mandates that in your report you assess the effects of imposing the requested relief or the recommended relief, and the effects of not imposing the recommended relief. I think as a matter of law if those effects are the same, I don't think you can recommend relief in a case like that.

CHAIRMAN OKUN: Mr. Loeb?

MR. LOEB: I neglected to respond to your prior question which Mr. Reilly responded on. But I would like to just make one additional comment if you'd permit it.

I sort of lost the train of thought on the comment though, as I was listening to what Scott said. Let me come back to it in a moment.

CHAIRMAN OKUN: That would be fine. Actually, I don't have any other questions.

VICE CHAIRMAN HILLMAN: Actually, I have three questions in terms of three issues that I wondered if you could address in the post-hearing brief. Although after listening to Mr. Flicker I may add a fourth one to it.

The first, I think I know the answer to the question but I need to know your legal briefing in terms of why. And the question is this:

In determining whether imports are increasing rapidly should the Commission use the data on imports or the data on shipments of imports? Because there are distinctions.

I obviously heard Mr. Reilly's answer and I know which set of data he was looking at so I know which one, you know, he's relying on. But I need you to brief for me why I should look at one versus the other.

Second is I wondered if you could brief us a little bit of the discussion that Mr. Rosenthal and Commissioner Koplan among others had this morning on this issue of the period that we should be looking at. And I'd ask you to brief it in light of two things: one, I think you heard the argument that Mr. Rosenthal made about whether or not the United States made any tariff concessions as a result of China's accession and therefore whether there was anything that we should be looking at as a circumstance that would have caused an increase in imports and whether that's relevant?

But I would also secondly ask you is to address the issue of how we should look at it in light of the fact that Section 421 completely superseded Section 406, presumably a statute under which the Commission would have traditionally used a 5-year period of review. I mean it strikes me that it's a little bit of a Catch-22 to say you can no longer file a 406 case, you now must file a 421 case but you now can't use data that you would have traditionally relied on in bringing a 406 case.

So if you want to address that, that aspect of this issue of what is the appropriate period of review under Section 421?

Third thing would be I understand the answer is probably going to be nothing, but I nonetheless want you to brief should the Commission find market disruption to exist what is an appropriate, you know, what is an appropriate remedy? I understand your going into this and it's going to be there is none but nonetheless I would ask you to at least look at if you don't like the Petitioners' remedy recommendation is there something else that you think more appropriately fits with the facts and the circumstances and the circumstances of this case?

And I guess last but not least and to some extent prompted I think a little bit, Mr. Flicker, by your response to Chairman Okun would be this issue of you seem to be reading into the statute this requirement that the president is only entitled to impose a remedy if you in essence can know or prove ahead of time that will in fact be an effective remedy. And I A) am not sure exactly where in the statute you see this kind of requirement and then B) how is it that you are supposed to know ahead of time whether a particular remedy is or is not going to be effective?

I mean how is it that we are supposed to prejudge the effect of a remedy such that we're telling the president he has no authority to do something unless we can prove up front that this is going to be an effective relief?

So if you could address those issues in the post-hearing brief I would be very appreciative. Thank you.

CHAIRMAN OKUN: Commissioner Miller?

COMMISSIONER MILLER: Madam Chairman, in light of the in camera sessions to come I have no further questions at this point. Thank you.

CHAIRMAN OKUN: Commissioner Koplan?

COMMISSIONER KOPLAN: Thank you, Madam Chair.

Just one comment. I'm reading subsection A, Mr. Flicker, and I don't see that requirement written in there either so I would be interested in your post-
hearing response to that as well.

And I have nothing further, thank you.

CHAIRMAN OKUN: Commissioner Lane?

COMMISSIONER LANE: No questions.

CHAIRMAN OKUN: Mr. Loeb, did you have -- did you remember, did you want to say something?

MR. LOEB: Yes, I did.

CHAIRMAN OKUN: Okay.

MR. LOEB: Thank you. And it also actually tied into one of the sub-items on Vice Chairman Hillman's request list. So I will just make the point quickly because I know you want to get to the closed session. And that is on a number, on the use of the 2003 data.

I know the Commission has in dealing with this issue, this rapid increase issue previously used language the lines of we'll look at the last two to three years. And I would suggest that using even half your 2000 -- hard half of your 2003 data you also have the ability to project on a fairly reliable basis given what we know about the way this industry works but even if you don't do that you've still got a hard half year of data. And what you had, I think you have the same thing here you had in almost all of the 406 cases as well as prior 421 cases in the following sense:

This case is different than all of the others that I can remember because here -- because in all the other ones, 421 and 406 as I recall it, you had a pattern of steadily increasing imports through your 5-year period. And then if you sliced off the 2-
year period at the most recent end and looked at that you would have steadily increasing imports.

If you looked at Brake Drums you saw a

significant increase in the most recent period over the previous period before that within the 2-year window.

This case is different than all of those. This is whether you go back to a 2000 base year or use 2001 as a base year and don't count those numbers you still have the same problem, you have an increase that occurred in 2001 and then flat 2002 and 2003. And I think no matter how you draw the line to say what's a base year, what's in, what's out, you end up at the same place which is we do not have currently rapidly increasing imports.

CHAIRMAN OKUN: I appreciate those further comments.

I have no further questions. Let me turn to staff to see if staff has questions for the panel.

MS. MAZUR: Diane Mazur. Staff has no questions.

CHAIRMAN OKUN: Counsel for Petitioners have questions for this panel?

MR. ROSENTHAL: No, we don't.

CHAIRMAN OKUN: Okay. Well, then I want to thank these witnesses very much for your appearance and for the answers you have given this afternoon. We are going to go to our closed session.

We will take a few moments. The room must be cleared of all parties other than those under the APO. And I note that both of the sessions will follow each other so that we will try to avoid some of the movement. So we will take a probably 5-minute recess until the Secretary declares it cleared.

(Whereupon, at 4:25 p.m., the Commission recessed to reconvene in closed session.)

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O P E N S E S S I O N

(5:39 p.m.)

MR. ROSENTHAL: As you know, we firmly believe this is an appropriately case for 421 relief, and we believe we satisfied the standards, even the impossible standards or semi-impossible standards that some might have imposed on us. I was happy to hear the discussion earlier about not having 421 interpreted in a way that is more onerous than the Section 406 statute that preceded it.

Let me just make a couple points. One, too bad Commissioner Miller isn't here, but I understand this reference. I believe we've answered the questions concerning health and safety and the environment, and I, as much as anyone else, enjoy getting down in the gutter, but when I do it's usually to look at manhole covers.

In this particular case, I want to focus below ground on waterworks fittings. If you look at the data in this case, you'll see every one of the statutory factors has been satisfied. Interestingly enough, the Respondents here, in talking about manhole covers and manholes, have ignored the first rule of holes, which is when you're in a hole stop digging.

What you heard as the testimony went on was more and more in the way of admissions after the denial of underselling, of price competition, and ultimately the notion, as admitted to by the question by Commissioner Pearson, that they price identically, they see the price list, they have similar or comparable multipliers, and there's competition at every level. There can be no denial of that.

The Respondents have apparently abandoned what appeared to be an argument that they were making in the prehearing brief, which is that somehow this is a segmented market. As we recently discussed, the Respondents have apparently abandoned the notion that somehow there's a large segment of the market that is off limits to imports because of Buy America. We cite in our prehearing brief figures of 10 to 15 percent. Mr. Rybacki basically acknowledged that today.

We talked about the admission by Mr. McCutcheon concerning how when imports are present in the marketplace McWane's prices are lower. I think it's true with respect to every domestic industry participant here. When imports are competing, they undersell, and the domestic industry prices have to go down.

I was struck by the discussion by Mr. Rybacki about how he explored at one point the establishment of a foundry in the United States and abandoned that effort because of the, in his words, OSHA, EPA and other blockades.

We call those protections for workers and the environment, and McWane has been happy to invest in that, as we talked about. Those investments have been extensive. Yes, they have increased cost somewhat, but those are the costs of doing business in the United States, and what the statute is about is permitting companies and workers to continue to do business in the United States in a safe way.

The notion that no remedy should be applied because if we don't want to protect the U.S. industry and its workers from imports from China that other countries will supply that imported product, other countries that don't similarly employ environmental and safety and health standards, I think makes a mockery out of the statute.

I want to talk a little bit about remedy for a minute. We had some good discussion earlier today. I was just shown a recent APO release, which is your economists' analysis of the effect of different tariff levels, and I urge you to look at that. We will comment on it as well. All I can say is it makes me feel ever more practical.

I was happy that Mr. Loeb talked about Japan and the 100 percent tariff on Lexuses. In fact, we were involved in the case trying to get U.S. autos into Japan when the Clinton Administration proposed a 100 percent tariff on Lexuses. My recollection is that Lexuses have a slightly higher average unit value entering the U.S. than do ductile iron waterworks fittings.

In that particular instance, I'm pretty sure a 100 percent tariff would have been preclusive of Lexus automobiles. I'm not sure, and you'll see for yourself, whether a 95 percent tariff would foreclose the U.S. market to imports from China, given the FOB prices that China is able to ship out.

We talked a little bit about the alternative theories that have been presented by Respondents in this case. In fact, none of them make any sense. In fact, every one of them is contradicted by these data in the record.

Again, I'll refer you to your exhibit in your publication on critical circumstances, Exhibit

V-5, where it talks about what the factors are that cause purchasers to buy U.S. versus Chinese or other imports. Price is the predominant one where the Chinese have an advantage. All these other arguments about availability, supply, willingness to supply, all that are debunked by your data on your record.

I'd like to just close by saying that I know these cases are difficult for you, and I very much appreciate the time and effort that you put into this, including the time of the Commissioners who came down and visited the plant in Alabama and the staff. I know not everyone could make it, but, believe me, in an industry that is bleeding as it is it makes a real difference to them to know that you've all taken the interest that you have in trying to learn about this industry, learn about the problems and do the right thing.

I'll close with that statement because one of the watch words of Rufner Page, who is the president of McWane, who you've heard about a little bit today from Leo Gerard and Mr. Green and others at McWane, has been do the right thing.

Despite the bad publicity, despite all the problems that they've had, that has been their watch word. That's why they've invested. That's why they continue to care about the workers and the environment. That's why they continue to care about employment in this country.

The easiest thing for them to do, the easiest thing and a path taken by many others, is to stop producing in the United States and start importing from elsewhere. They can do it tomorrow, or at least very quickly, if they wanted to. They don't want to. They're here. They've chosen this remedy for a reason. It's one that promises the possibility of quick relief at least compared to the other statutory provisions.

They are trying to do the right thing by keeping production, employment, workers in the United States in good paying jobs, and I hope that this Commission will do the right thing yourselves. I trust you will. Make an affirmative determination here and provide and recommend a strong and effective remedy.

Thank you.

CHAIRMAN OKUN: Thank you.

We will now hear from Mr. Loeb.

MR. LOEB: Thank you, Madam Chairman, members of the Commission. I come back to where Mr. Rosenthal started with the Wizard of Oz. I have the feeling I've sort of been through Oz for most of the day here.

We have here a Petitioner whose head man, Mr. Green, comes to the Commission and testifies, and these are his exact words: "We are the predominant manufacturer and player in the DIWF market."

In fact, it really can't be disputed even if it didn't come out of his own mouth, and yet we have repeated references to the fact that or to the assertion that this is an industry, a domestic industry that is about to disappear.

Again looking for the precise language that was used at several points this morning by the Petitioners, Mr. Murray I believe of U.S. Pipe essentially said the industry would disappear. We heard Mr. Rosenthal say that the industry is headed for oblivion, headed for extinction. This industry won't be around if you don't provide it relief here. In five years, there will be nobody to come into this room and sit to talk about the DIWF business in the U.S.

A rather operatic set of suggestions when we're talking about a company that has a huge market share. I don't recall whether it's APO or not, but everybody knows that it's quite large. The notion that this company and this industry is about to disappear absent relief here is phenomenally overstated.

As we wander through that variety of Oz, several things have been said about Respondents' position that are cartoon characterizations that are incorrect, and at least in a couple of respects I want to make sure the Commission knows exactly what's being suggested here.

It was suggested, for example, that it was Respondents' assertion that U.S. Pipe was just doing hunkey-dorey, but all of a sudden we now know that that's not the case. I certainly don't think you'll find that in anything that we've said. I don't know about the other importer briefs. There are three different importers that have been filing briefs.

The fact is that U.S. Pipe has been a disaster case from 1998, from the earliest data that you have. It has not been affected by Chinese imports. It's been affected by a variety of its own other factors that relate to its own business operation strategy and product mixes.

It's been suggested that the Respondents propose that it was important to segment this into a large and non-large, over 30 and under 30 market. One of the importers did, PCI. Nobody else that I recall on Respondents' side thought that would make any difference one way or another.

Finally, and this is I think the one that's most important, it's been suggested that the Respondents' case with respect to these pricing issues focuses entirely on Buy America. We certainly do not, have not, and if you read our briefs you'll see that we haven't, and Mr. Riley, as he said directly today, said that it is not a particularly critical part of at least the Chinese Respondents' case.

I understand that the importers feel emotional about being precluded from certain customers, whether it's Pennsylvania or many others, but that's not the key point. You heard these people talking about the loyalty rebate program not because they were trying to slam McWane; because they were trying to make the point that there's substantial areas where they just can't get in the door and have not gotten in the door. There are customers and purchasers who are not subject to competition.

Ask yourself this. Ask yourself the most fundamental question. How is it that you have a product like a fitting that goes to connect elements of a sewer system and the Petitioner, McWane, can maintain differential pricing all across the U.S. with the dramatic differential that you see?

Wouldn't you expect from all the cases that you normally see in front of this Commission that you'd see uniform national pricing with some fairly minor differences that might relate to accessibility in the market?

I mean, this is clearly a market where McWane controls, sets the price arrangements, sets the distinctions between the low percentage and the high percentage sectors of the market, and the suggestion that the importers take, the importers' suggestion that what you've got is a bundle of mixed pricing data that comes in sometimes from competitive markets, sometimes not, and when it's aggregated mixes the two up I think is belied simply by the fact that they maintain the famous McWane map.

I think the last thing I want to say is that I do believe that the Commission has good grounds for making the determination here entirely on the basis of the absence of a rapid increase. You know our position on that. You'll see it again in the post-
hearing brief.

I don't want to leave underemphasized the weakness of what I think is the market disruption case here. There's an awful lot about the information that the Petitioners have put in and are attempting to ask the Commission to rely on to take this rather extraordinary step that, as you heard in the testimony today, is at least uncertain or confused.

We're in a setting where we're dealing with a statute that requires this Commission to act on the fastest track of any and all the trade laws. I would suggest that on the basis of the record that the Petitioners have assembled here there is not a grounds for reaching a determination of market disruption and certainly not a grounds for reaching a determination that the condition of the U.S. producers has been caused by the Chinese imports in a significant fashion.

Whether there is a small element or not is not the question before the Commission. It has to be significant causation, and I don't think the record that's been assembled here establishes that.

Of course, we've heard a lot about other options. We've emphasized these Petitioners could use other routes. I heard Dennis Rosenthal say they're thinking about that, so maybe they will do the right thing, as he says his client always says.

Maybe they will revert to doing a dumping case where we wouldn't be here on this day. We would be here after an extensive preliminary investigation and then a full Commerce Department determination as to whether the Chinese products are fairly or unfairly priced and then a full Commission investigation on injury where a lot of these things could be sorted out.

To suggest that this case ought to go to the Oval Office to the President to make a decision on on the basis of the information that McWane has put in I think would be a significantly irresponsible recommendation to the Commission.

We ask the Commission, therefore, to enter a negative determination on market disruption and on causation and on rapidly increasing, and we appreciate the Commission's attention. We appreciate the opportunity to have the in camera session, and we appreciate, as usual, the extensive hard work of the staff to get this material together.

Thank you.

CHAIRMAN OKUN: Thank you, Mr. Loeb.

Just so that I can note this analogy for all it's worth, the time has come for me to click my heels together and say there's no place like home, but before doing so I will tell you that post-hearing briefs, statements responsive to questions, requests of the Commission and corrections to the transcript must be filed by November 12, 2003. Final comments on market disruption are due November 26, 2003.

With no other business to come before the Commission, this hearing is adjourned.

(Whereupon, at 6:02 p.m. the hearing in the above-entitled matter was concluded.)

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CERTIFICATION OF TRANSCRIPTION

TITLE:	Certain Ductile Iron Waterworks Fittings From China

INVESTIGATION NO.:	TA-421-4

HEARING DATE:	November 6, 2003

LOCATION:	Washington, D.C.

NATURE OF HEARING:

I hereby certify that the foregoing/attached transcript is a true, correct and complete record of the above-referenced proceeding(s) of the U.S. International Trade Commission.

DATE:	November 6, 2003

SIGNED:	LaShonne Robinson

Signature of the Contractor or the

Authorized Contractor's Representative

1220 L Street, N.W. - Suite 600

Washington, D.C. 20005

I hereby certify that I am not the Court Reporter and that I have proofread the above-referenced transcript of the proceeding(s) of the U.S. International Trade Commission, against the aforementioned Court Reporter's notes and recordings, for accuracy in transcription in the spelling, hyphenation, punctuation and speaker-
identification, and did not make any changes of a substantive nature. The foregoing/attached transcript is a true, correct and complete transcription of the proceeding(s).

SIGNED:	Carlos Gamez

Signature of Proofreader

I hereby certify that I reported the above-
referenced proceeding(s) of the U.S. International Trade Commission and caused to be prepared from my tapes and notes of the proceedings a true, correct and complete verbatim recording of the proceeding(s).

SIGNED:	Donna J. Kraus

Signature of Court Reporter