Final CERTAIN TAPERED ROLLER BEARINGS FROM THE REPUBLIC OF KOREA INV. No. 731-TA-1380 (FINAL) HEARING BEFORE THE UNITED STATES INTERNATIONAL TRADE COMMISSION JUNE 5, 2018 STATEMENT OF BRIAN J. RUEL VICE PRESIDENT, THE AMERICAS THE TIMKEN COMPANY Good morning, Chairman Schmidtlein, Commissioners and Commission staff My name is Brian Ruel. I am the Vice President for the Americas at The Timken Company. In my current role, I oversee all aspects of customer contacts in the Americas such as sales, application engineering and service engineering. I have responsibility for sales to both OEM customers and our distributors regardless of particular market such as automotive, heavy truck, various industrial, rail and so on. This is my 34th year in the bearing industry, and with Timken. I have been in my current role since the beginning of 2016. As Chris Coughlin just testified, tapered roller bearings come in a wide range of sizes, but in the market there are meaningful distinctions between small diameter TRBs (those that are 8" or smaller) and large diameter TRBs (those larger than 8"). The tapered roller bearing was invented to address a problem that vehicles were having handling cornering loads. Not surprisingly, the largest use of TRBs in the market continues to be automotive and heavy truck customers. Nearly 100% of these customers need and use 0-8" TRBs. There is a distinct automotive aftermarket which consists of distributors and dealers/service operations catering to automobiles and trucks. Replacement parts, like those used by OEM customers, are nearly all 0- 1 Final 8" in OD. Similarly, a number of industries that have heavy load carrying requirements will need large diameter tapered roller bearings. Wind energy, large mining equipment, the steel, paper, and cement industries would be examples where TRBs used are largely over 8" OD. There is a separate distribution channel for bearings for industrial users. The bulk of over 8" TRBs move through distribution to end users. Industrial distributors will also carry 0-8" bearings that are used by industrial customers for particular purposes. Off-highway vehicles (whether agriculture, construction or mining) will use TRBs based on the load carrying needs, and hence some are under and some over 8". The distinction between the size of the TRB is relevant both to our customers in terms of what product they buy, but also to our sales force review of the business and interface with customers. For example, we generate internal reports which track business with our customers and that is done on a product basis for all products that Timken sells to those customers. We distinguish between 0-8" TRBs and over 8" TRBs in our sales opportunity reviews and in our customer relationship management software. What I can tell you is that customers are not holding up large diameter TRBs as relevant in satisfying their needs for small diameter TRBs. Imports from Korea have increased dramatically during the period of stagnant to declining demand that was 2015-2017, as is shown in Tables C-1 and C-2 of the Public Prehearing Staff Report. With my responsibilities, I regularly deal with customers and our sales force who find themselves in competition with product offerings from Korea. During the 2015- 2017 time period, the vast majority of that competition has been at automotive and heavy truck OEM customers. The Public Prehearing Staff Report at page 11-3 states that half of OEM shipments of all TRBs went to automotive (what we understand to be both automotive and heavy 2 Final truck). All of the automotive OEM purchases were undoubtedly of 0-8" TRBs. Automotive has remained the largest part of Timken's 0-8" TRB business (both OEM & distribution). And we know that a number of other major U.S. producers are also very active in the automotive OEM part of the market. So the competition at automotive and heavy truck OEM accounts has been intense with Korean producers capturing a significant and growing share of this important segment of the total market. Automotive and heavy truck OEM contracts involve large quantities of TRBs for use in various positions on a given vehicle platform. As the Public Prehearing Staff Report reviews, purchasers view quality, availability of product and price as the three most important factors in purchasing decisions. For many applications at automotive and heavy truck OEMs, each of the Korean producers, Timken and any other domestic producers competing will provide product options that meet the performance needs of the customer and will have capacity available to handle the volume needs. So in the end competition in most circumstances comes down to price. The Public Prehearing Staff Report confirms that purchasers overwhelmingly view U.S. and Korean producers as comparable on every one of the sixteen purchasing criteria, including quality and availability of product, which supports what my sales force sees in the market every day. At the time of the petition and for the final questionnaire response, my sales team has compiled a long list of contracts where Timken was competing, whether for new business or for renewal of existing business, and often went through rounds of proposals for customer consideration. In nearly every example, Timken reduced prices in an effort to obtain the business. In most situations, we obtained the business only if our final offer was sufficiently low. Many others we lost as we were not sufficiently low priced. We have provided several 3 Final affidavits as part of our prehearing brief where we go through some specific examples. Timken obviously prides itself on its engineering prowess and its ability to solve particularly challenging needs of OEM customers. And there can be instances where Timken's solution may be the only viable one for a customer, and hence price is not the controlling element in those situations. But each of the major US producers of 0-8" TRBs and the two Korean companies are viewed as having sufficient quality within the automotive and heavy truck arena. The Koreans would not be outperforming the market but for the large dumping that has been used to undercut domestic prices. Yet that is exactly what is happening — large increases in imports 2015-2017 in 0-8" TRBs, increases in the first quarter of 2018 (even with the DOC preliminary dumping determination in early February), and large lost contracts during the 2015-2017 period where production starts in 2018 ensuring that imports will continue to surge in the 2018-2020 period. Margins of underselling of over 20% on 87% of Korean cups and cones covered by the pricing information contained in the questionnaires, and preliminary dumping margins of from 21 to 45%. As I testified during the preliminary injury conference, in trying to obtain business, if Timken can't offer a price from a domestic plant that appears to be competitive with what we understand our competition to be offering, we will review whether the part could be supplied from an offshore operation of our company. Lower costs at a sister plant overseas may flow from the volume of production of a particular part number based on regional demand or from other factors (such as material or labor). Timken operates globally to supply demand within a region where possible. In the Americas, the U.S. plants are our core operations. Thus, we always look to satisfy an opportunity in the United States (and for that matter in the rest of the Americas) from our U.S. production if possible. But we revert to our overseas operations for 4 Final OEM business typically only where the prices that frame the potential contract are too low to permit profitable production in the United States. And too often over the last three years, we have been unable to lower prices regardless of source to compete with the dumped prices from our Korean competitors. The pricing pressure in the market has not only been felt by Timken. The Public Prehearing Staff Report at Page V-24 indicates that "three of the seven responding U.S. producers reported that they had to reduce prices and two firms reported that they had lost sales." As three of the domestic producers only manufacture TRBs that are over 8", presumably there would be no reason for those producers to reduce prices because of Korean product that was 0- 8". Thus, other domestic producers besides Timken have experienced pricing pressures. And purchasers have confirmed both that they bought Korean product instead of US product and most acknowledged Korean prices were lower. Specifically, the Public Prehearing Staff Report at V-26 indicates that eight purchasers indicated they bought Korean product instead of U.S. And six of those purchasers indicated the Korean product was lower priced. With a declining apparent consumption and surging imports from Korea, with massive underselling, and with huge identified lost sales, Timken has experienced a cost-price squeeze and declining operating income. Let me comment briefly on the statements by those in opposition that actions by our company eight to ten years ago to correct unprofitable pricing in the automotive/heavy truck sector globally define what has been happening to the domestic industry in total during the period of investigation. I was personally deeply involved in the "Fix it/Exit" implementation that started back in 2008 and supplied extensive information in an affidavit with multiple attachments as part of our post-conference brief last year to show that the claim that the company 5 Final was exiting the automotive market was never true and was known by every customer. Automotive/heavy truck has remained the largest part of Timken's U.S.