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PESA Testifies Against New Tariffs at the USTR Section 301 Committee

PESA Vice President Government Affairs Tim Tarpley testified before the US Trade Representative 301 Committee on Thursday August 23, 2018. The following is the transcript of PESA’s testimony; the full transcript is available at USTR.gov.

 

BISHOP: Our next witness is Tim Tarpley with the Petroleum Equipment and Services Association.  Mr. Tarpley, you have five minutes.

TARPLEY: Distinguished Members of the Section 301 Committee, thank you for permitting me to testify today.  I serve as Vice President of Government Affairs for the Petroleum Equipment and Services Association. I appear today on behalf of PESA.  PESA is a national trade association representing over two hundred companies that provide the services, technology, equipment and expertise necessary to safely and efficiently explore and produce oil and natural gas. PESA serves as a unified voice for the oilfield services and equipment sector advocating for and supporting the sector’s achievements in job creation, technological innovation, and economic stability.

The oil and gas supply services and manufacturing sector alone added over 350 thousand jobs in 2017. Boasting an 11 percent job growth. More than seven times the U.S. average.

Increasing demand for oil and gas worldwide, paints an optimistic picture for employment opportunities in the coming years.  This opportunity is good news for the American economy. And it’s good news for the American worker.

The energy manufacturing sector has traditionally been dominated by U.S.  manufacturers despite growing competition from abroad in recent years. This sector is responsible for building high quality equipment that has set the standard worldwide for quality and innovation.

PESA applauds the Administration’s efforts to aggressively target China to curb unfair trade practices and to equalize the 32 billion a month trade gap between our two countries.

Forced technology transfers and commercial espionage are common in China. And some PESA members have faced negative consequences from these actions.

However, PESA believes that some of the proposed tariffs will not be successful in USTR’s stated goal of combating China’s unfair trade practices. And instead, could unintentionally harm the energy manufacturing and service sectors, areas where the U.S. currently enjoys worldwide dominance.

PESA members source certain parts used in the manufacturing process of larger end products from qualified Chinese suppliers.

If a 25 percent duty was imposed on products which make up a significant portion of the supply chain, our member companies would simply be forced to continue to source from China and an increase would be — increasing the cost of the final product. This increase would have to be passed on down the line.

While PESA members would welcome the U.S. manufacturing to fill the void so they would not have to source from China, the reality is that due to the complex and highly technical manufacturing processes used to produce many of these products, it could take many years for some of the products to be produced domestically.  Some products may never be produced domestically.

The industry is also highly regulated.  And supply chain disruptions could cause significant delays as new parts would have to be certified to ensure compliance with new — with regulations.

This scenario could ultimately provide foreign manufacturers of final products a competitive advantage over U.S. manufacturers.

PESA is especially concerned about the specific HTS codes contained in List Three, which target minerals used in the drilling process, and components used by U.S. manufacturers of energy equipment to produce final products in the United States.

For example, natural barium sulfate is a mineral commonly used as a weighing agent for all types of drilling fluids. And is used to facilitate operations of the drill bit, remove cuttings, and to maintain control of the well during drilling operations.

This material is targeted by HTS codes 2511.10.10 and 2511.10.50. China maintains the largest barite reserves in the world.

And PESA believes that there is an inadequate supply of quality barite available domestically to supply the needs of our industry members.

List Three also contains several HTS codes which include raw material and components used to support the U.S. manufacturing of oil field surface and sub-sea production equipment.  The full list of these HTS codes is included in my written testimony.

Additionally, List Three contains several components used in pressure control, completion, and artificial lift equipment used in well construction and production operations.  Again, this list is included in my written testimony.

PESA has significant concerns that disruptions in the supply chain for these listed products could slow down and increase the expense of drilling operations in the United States. As well as decrease U.S. competitiveness in the energy manufacturing sector.

We believe that these would both be negative and unintended consequences of the proposed action by USTR.

In conclusion, PESA supports the actions of the USTR to aggressively target China for their unfair trade practices. However, PESA urges USTR to carefully consider the impacts of the imposed tariffs on the energy industry.

And to reconsider the scope of the proposal so that the U.S. energy manufacturing and operating companies can remain — continue to remain competitive.

By remaining competitive, the energy manufacturing sector can continue to support the 350 thousand plus American workers who are directly employed in our sector just in 2017.  And to continue to power the American economy.

PESA looks forward to working with USTR to achieve your goals while protecting the integrity of our sector. Thank you.


YAO: My question is for Mr. Tarpley. You’ve mentioned in your testimony that you’ve tried to identify alternative source of supply. But they were deemed insufficient or inadequate. Can you elaborate a little bit more on your efforts? And whether there is domestic availability for the type of products that you’re sourcing from China?

TARPLEY: Sure. Thank you for the question. PESA represents over two hundred companies. So, I have to be careful, I can’t speak for every company in the organization.

But, to start with barite, our member companies do not believe that there is enough domestic source, even if we were to expend all of our domestic abilities.

Part of that is due to the energy renaissance in the United States. We are producing a lot more oil and gas in the United States right now than we ever have.

In fact, just today it was released that Texas is now exporting more oil and gas then it is importing. That’s an incredible statistic.

So, the use of barite has increased significantly. That is one — that is one aspect of what is going on here as well.

When we’re talking about the other HTS codes that I listed, which is basically low tech parts that are going into high tech energy manufacturing equipment, certainly it is possible that those could be sourced from other locations.

However, the uncertainty that that would bring into the supply chain is significant. Our members believe that that would take upwards of one year to potentially two years to get up and running.

And some may never — some parts may never get up and running. So, it’s mainly the uncertainty in the supply chain that our members are concerned about.