Arun Goyal | 04 Apr, 2006
Beginning
on April 7, the duties on leather shoes will rise progressively from
four percent over five months to 16.8% on imports from Vietnam and
19.4% for those from China. This duty is considered sufficient to
correct the injury caused to European producers by dumping.
Children’s leather shoes are excluded to protect poorer families.
Special Technology Advanced Footwear in the sports shoes category will
also be excluded from the measures because there is not sufficient
production of these shoes in Europe for injury to have occurred. A
monitoring mechanism will be created to ensure that importers do not
use these excluded categories to circumvent the duties.
The European Commission adopted proposals by the European Trade
Commissioner Peter Mandelson to impose a provisional anti-dumping duty
on leather shoes from China and Vietnam on 23 March, 2006. The measures
follow a preliminary Commission investigation which claims to “(have)
identified clear evidence of disguised subsidies and unfair state
intervention to the leather footwear sector in China and Vietnam.”
State subsidies galore
EU investigators found clear evidence of serious state intervention in
the leather footwear sector in China and Vietnam - cheap finance, tax
holidays, non-market land rents, improper asset valuation and export
incentives. The dumping is flowing from this state subsidization.
Lesser duty principle used
The duty would have been stiffer if the full dumping full injury margin
had been used. Instead the dumping margin, which was less than the
injury margin was used on the “lesser duty principle”. (The difference
between the export price of the dumped product and its true value is
the dumping margin. Margin of injury, is the difference between the
export price of the dumped item and the sales price for the equivalent
EU product). Europe’s anti-dumping rules ensure that anti-dumping
measures cannot be used to make imports more expensive than the
equivalent EU product. This means that the competing export is much
cheaper than the European equivalent. This is not true of the rules
used by the United States, China and others - nor do these countries
take account of the wider public interest through a "Community
interest-type" rule.
Retail impact
The duty will add about 1.5 euro on average import prices of 8.5 euro
for leather shoes that retail between 30-100 euros. Leather footwear
import prices to the EU over the last five years have fallen by more
than 20% but consumer prices have remained stable and even risen
slightly. There is some margin within the supply chain to absorb a
small duty on import costs by spreading it across product ranges and
the distribution chain and the impact of measures on consumer prices
will be minimal. This case concerns just nine pairs of shoes from every
100 pairs bought by Europeans
Injury findings
Since 2001, European footwear production has contracted by about 30%.
Some 40000 jobs in the sector have been lost. This is not related
solely to dumped goods. But state-intervention and dumping in China and
Vietnam have exacerbated intense competition.
There is clear evidence that although leather footwear import prices to
the EU over the last five years have fallen by more than 20% but
consumer prices have remained stable and even risen slightly. (There is
margin within the supply chain to absorb a small duty on import costs
by spreading it across product ranges and the distribution chain.)
India gains
The shoe industry in India will get a big push. A special analysis by
us shows that India is neck and neck with China in the European market
in the shoe market in terms of price. However, in terms of volume and
market share, it is far behind. The anti-dumping duty gives us a good
opportunity to increase market shares. Apart from duty, China and
Vietnam will face a lot of problems in customs clearance since the
European customs will have to decide on both classification and
valuation. There will also be a lot of disputes, specially because of
the unsympathetic nature of the local customs administration. What is
more, the measures will be in place for five years which is a virtual
both a windfall and bonanza to Indian industry.
The industry should immediately form a study group to assess the
implications of the measure. It must also mount a counter offensive to
ensure that the provisional measure is not diluted in the final
findings.
