EU fights against cheaper imports

24 October 2005

Overview China's economic growth is expected to reach only 8% in 2006, down from 9% this year as domestic demand declines. With the low cost of labour and materials, Chinese footwear manufacturers have enjoyed a rapid increase in exports to overseas markets in recent years. The European Union is the second largest destination for Chinese exports, the United States being the first. Recently released figures from the Italian Footwear Association state that Chinese shoe imports to Italy rose by more than 900% during the first five months of 2005. The increase is faster than the 700% surge recorded for all of Europe during the first three months of 2005. Rossano Soldini, president of the Italian Footwear Association, ANCI, said that Italian shoe exports fell 15% by volume during the first quarter, more than twice the decline posted in 2004. Soldini said that 900,000 jobs in Europe are at risk, a third of them in Italy, where such jobs are disappearing at a rate of almost 3% a year. Italy is one of the worst affected countries. Adolfo Urso, a deputy Italian industry minister said earlier this year: 'It's a red alert for the import of shoes from China. The situation is dramatic for this vital component of the Made in Italy export sector.' Another factor that is not helping the situation is that in July, the European Commission also announced that it was not ready to grant market economy status to China. If China were to be granted this status, this would be a move that would help the country avoid punitive anti-dumping measures. Francoise Le Bail, chief spokeswoman for the European Union's head office, said it was unclear when China would meet EU criteria for being a market economy. In Vietnam, footwear exports in July 2005 rose by 20% to reach $300 million which now suggests that the country will reach a total export figure of $3.4 billion for 2005. The higher figures are said to be due to continued growth in traditional Vietnamese export markets and a sharp rise in new export markets such as South Africa, Taiwan, Japan and the Netherlands. Many in Vietnam also believe that these anti-dumping investigations could hinder Vietnam's accession to the WTO. The complaint The European Commission received the complaint on May 30, 2005, from the European Confederation of the Footwear Industry (CEC) on behalf of producers representing a major proportion (in this case more than 40%) of the total EC production of certain footwear with leather uppers. The complaint is in relation to the protection against dumped imports from countries outside the EC and alleges that certain footwear with leather uppers originating from China and Vietnam are being dumped and thereby causing material injury to the EC industry. The products allegedly being dumped are footwear with uppers of leather or composition leather and involve more than 30 categories of shoes. The CEC has provided the EC with evidence that imports of these particular shoes have significantly increased in terms of both value and volume. These increases are said to have had a negative impact on the EU's market share, the quantity of European products sold and the level of prices and, in turn, affected the financial and employment situation in the EC. Once the claim has been considered by the EC and it has been concluded that there is sufficient evidence to justify an investigation, the Commission notifies all involved of the initiation of anti-dumping proceedings. This notice was issued on July 7, 2005. Sampling The aim of the investigation is to establish whether the products concerned are being dumped and whether this dumping is causing injury. One possible method of investigation is sampling. This option is often preferred if there are a large number of companies involved in the investigation. To decide whether sampling was necessary in this case, the notice issued by the EC at the beginning of July gave all Chinese and Vietnamese exporters/producers 15 days to make themselves known to the Commission and provide information on their company such as contact details and both domestic and foreign sales figures. Out of a possible 1,000 Chinese shoe manufacturers, it was reported in mid-August that around 70 businesses had submitted the completed forms and materials. Although this figure is only a small proportion of the companies involved, it was said to have included most of the major shoe manufacturers in China. In this case, the Commission chose to apply sampling to investigate both the Chinese and European perspectives. The EC selected nine large footwear manufacturers from China's main footwear centres in Guangdong, Fujian, Zhejiang and Liaoning. For Europe, the selection of companies was based on the largest representative volume of production and sales in the European industry. Once notified of their inclusion in the sample, a company are given 30 days to return all the requested information. The information required by the EC is in the form of a questionnaire which is sent to all involved parties including the relevant European and Chinese authorities and import/export associations. All parties are also permitted to supply supporting evidence and information to substantiate their claim. Findings As Leather International went to press, the European Commission had not made any ruling regarding this investigation. Rulings can take anything up to 15 months after notice has been given of the investigation so a decision on this particular investigation could be made as late as October 2006. UK newspaper The Times reported on September 6 that there would be no charges placed on Chinese leather footwear until April 2006. However, many manufacturers have been unsatisfied with the results of the much-publicised clothing dispute between China and the EU recently, which allows China to eat into next year's quotas. The Times reported that some European countries would push harder for quicker resolution of the leather footwear investigation with the aim of imposing duties before the end of the year. Chinese reaction China launched an aggressive attack against the proposed anti-dumping measures, claiming that the investigation 'lacked legal basis and factual proof'. Bloomberg reported on June 26 that the Chinese opposed the anti-dumping investigations, accusing the EU of distorting trade figures and misleading the public. 'China urges the EU to start with the facts, make decisions cautiously and avoid trade frictions', said a commerce ministry spokesperson. China reported at the end of June that it had begun negotiations with Europe over 'serious errors' in collecting and calculating trade statistics. The EU claims that imports of some types of shoes from China jumped 581% in the first four months of 2005, 25 times the figure provided by China's customs officials. Luan Chunsheng, vice president of the China Chamber of Commerce for Import and Export of Light Industrial Products and Arts-Crafts, said that the data the EU was using was not accurate. 'The figures from 2005 covered the 25 EU countries while part were from 2004 and based on an estimation for the ten new members', he said. China has also urged the EU to resolve trade disputes through talks rather than taking legal action. Following a two-day Forum on Development of Global Footwear Industry in Beijing in June, president of the Italian association for footwear retailers Massimo Donda agreed that a diplomatic solution would be best. 'We hope the EU's anti-dumping suit against China can be solved through negotiations instead of imposing trade barriers', he said. Vietnam is also reported to be querying the data the EC is using to investigate their side of the claim. European reaction In contrast, on September 20, the European Branded Footwear Coalition (EBFC) launched an attack against the anti-dumping investigation, warning that if quotas are imposed, they could be detrimental to the European Union. The EBFC also condemned the scope of the investigation and the way it was being investigated, claiming that the case was too broad and covered all leather footwear imports from China and Vietnam. If quotas are imposed, they would cover all categories of shoes whether for men, women or children and regardless of price, quality or style. The EBFC claims that the investigation does not take factors such as currency fluctuations into account and states that imports into the EU are necessary as Europe cannot manufacture sufficient footwear to meet European needs. If the EC rules in favour of quotas, the EBFC believes prices of footwear in the EU will rise considerably and consumer choice will be limited. This will cause sales to fall further and have a negative effect on the already-struggling European footwear industry. Solution? There are those in China that believe the solution is in the long term. Wei Yafei, spokeswoman for the China Leather Association (CLA), indicated in mid-August that companies should be encouraged to diversify their export markets in order to avoid more anti-dumping duties in the future. A spokeswoman from the Peking University School of Economics also believes that China and the EU may be able to resolve these disputes if China is able to fulfil its aim of producing higher-value products. China's market is booming, and with the percentage of middle-class citizens with disposable incomes also climbing, so is the demand for western-manufactured goods. According to a recent report entitled 'China Advances, Countries Protest, Free Trade and Contraband' published by APLF, organisers of the Hong Kong leather fair and joint organisers of ACLE, Moda Shanghai and CIFF, the rate of consumer demand is increasing in China at such a pace that it is almost impossible to buy an imported car without going on a waiting list. The demand for top quality products, including leather articles, is likely to increase as the economy continues to grow and the Chinese leather industry is in a good position to answer these demands. Side-effects The investigation into anti-dumping charges on certain categories of footwear with leather uppers is not the only complaint the EC has recently received about China. Anti-dumping charges were placed on two categories of safety shoes at the end of June 2005 following complaints from European manufacturers, particularly in Italy and Spain. The Chinese industry feared that this would be the first of several anti-dumping cases against China and this certainly turned out to be the case. Prior to the leather upper complaint, an investigation was launched into anti-dumping duties on chamois leather from China. So far, there has been no ruling in this case from the Commission. Sources in China also believe that the leather shoe investigation will lead to further accusations against fabric shoes made in China. This complaint could involve more businesses than the leather investigation. The threat of anti-dumping duties has also led many manufacturers to turn to other markets regarded as a safer option. The Economic Times reported on August 18 that the possibility of new anti-dumping charges has forced many foreign manufacturers to shift their focus to India. Many international firms, which had set up in China, have backtracked and are now said to be eyeing India as a safer bet. However, Danish shoemaker PT Ecco Indonesia president director Flemming Larsen said the firm had recently decided to expand their factory in China rather than the one in Sidoarjo, East Java, due to complicated taxation policies. 'We've decided to invest an additional $40 million in China, rather than here. China is more business friendly', he said. Ecco opened their first Chinese footwear manufacturing unit in April this year with a further three manufacturing units planned at the site in Xiamen by 2006. Two specific companies in Poland to be involved in the investigation are shoe manufacturers Wojas and Arcobaleno, selected from 26 Polish producers who formed part of the original petition lodged at the end of May. The Polish Chamber of Commerce (KIG) has recently released figures indicating that domestic leather footwear sales fell from €719 million to €426 million in the period 2001-2004. This decline is believed to be, in part, due to imports from China. Reports also suggest that Brazil is considering raising its anti-dumping penalty tariff from 15% to 35%.

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