The European Union launched a counter attack on cheap footwear imports from China, Vietnam and India by two anti-dumping investigation on 30 June and 7 July 2005. The European Commission says that the European Confederation of the Footwear Industry (CEC) has alleged the cheap imports of safety shoes from China and India on the one hand and leather shoes from China and Vietnam are a source of injury to the footwear manufacturers largely based in Italy, Portugal and Spain. In fact, 400 or so manufacturers demonstrated in Brussels against the cheap imports and handled over the keys of their factories to Trade Commissioner Mendelson to demand protection from unfair competition.

The council of leather exports headed by Mr Rafiq Ahmed, former FIEO President, has called for an emergency meeting on 21 July at Kanpur of the governing body to assess the implications of the investigation. The immediate implication is that some five or so large scale manufacturers in the safety shoes segment, mainly boots covering the knee are affected by the investigation. These manufactures must now identify themselves to the European Commission investigators and fill the questionnaire as a part of the sampling procedure. The questionnaire covers the April to March 2004-2005 investigation period. The information must be filed within 40 days of the  notification of 30 June 2005. The Commission will analyse the information and after conducting further investigation, decide on the original anti-dumping duty within nine months of 30 June. The provisional duty will be followed by the final measure within 15 months of the initiation date.

The going will be very difficult for the Indian exporters since the Commission already has considerable data based on surveillance launched in the January to March 2005 period during which quota restrictions on sensitive footwear import from China were removed.

Our analysis shows that the prices during the first three months of this calendar year are down by 34 percent compared to previous corresponding period in the case of China. For the rest of the world imports, the price is down by a whopping 65.4 percent. Shoes from China are being exported at just Euro 2.97 per piece compared to Euro 4.17 per piece in January to March 2003 period. The price of the rest of the world too have fallen to Euro 4.61 per pair from the previous level of Euro 7.19 per pair in the same period. 

The value of imports from China is up by 532 percent to reach euro 481 million. The quantity has risen by 681 percent to reach 161 million pairs. The market share of China in imports is now 30 percent compare to 5.9 percent in the previous year. In other words, China has first eaten up the EU producers and is now making a meal of other exporters including Vietnam and India, the other two named in the investigation.

It is unfortunate that India has been dragged with China in the dumping investigation. India’s market share of European market is only 3 percent and which too is under attack from China. Our investigation shows that the average price of footwear China is in the region of Rs 500 per piece in the April to December 2004 period. This, when converted to Euro at the exchange rate of Rs 52 works out to euro 9.62 per piece. This price can hardly be called dumping and is nowhere near the alleged dumping price of China. Given that the EU has to tag another country with China to present a facade of fairness, India is a good name to club with the East Asian giant. It is no wonder that the Commission has allowed the CEC, the complainant, to use constructed normal value for export prices from India. This is indeed strange since India is a well established market economy developed by Britain, a member of the European community. The prices of export product as sold in the domestic economy are readily available and should have been used to calculate normal value. This process would have yielded a negative dumping margin.

On the other hand, in the case of China, which is a non market economy, the normal price is based on approximation of the price in Brazil. The use of accepted methods for China and unusual methods for India is difficult to understand.

It may be noted that the normal value parameter is very important for calculating the margin which is based on the difference between the export price and the normal value prevailing the domestic market of the country of the export.

China is also charged with dumping of general leather shoes. Vietnam, the second largest exporters to European market is tagged along with China in the larger case of leather shoes dumping. In the China-Vietnam case, the market prices in the respective countries will be taken as the base for determining the crucial parameter of normal value. This is a third variation of use of normal value by the EU investigators in the footwear case.

Let us  hope that the Indian government is able to mount a successful trade diplomatic offensive to get out of the investigation. The country is hardly a threat to Europe with its small market share. In fact, India is threatened by China in the European market and is finding it difficult to keep up its exports. The singling out of the country for use of constructed normal value is also not fair and violative of WTO rules.

EU may also come to a voluntary arrangement with China to limit its footwear exports on the lines of the MoU between the two in the textiles case. In this case, India will be off the hook and will be able to gain market share since Chinese footwear will become little more expensive. As of now, our analysis shows that the ratio of China price to the rest of world price has improved to 0.64 this year compared to 0.57 in the previous year. In other words, China is getting relatively better prices than the rest of the world after removals of quota restrictions on its footwear exports. The Chinese growth at 532 percent compared to 105 percent for rest of the world coupled with better price realization shows that the dragon is eating up both the local industry as well as competitors.  Quota limitations on China will give rest of the world a chance to meet the Chinese challenge.