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China hopes for solution to EU shoes spat

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tHERE IS A NEWS FROM Reuters that China's foreign ministry struck a conciliatory tone on Tuesday in the latest trade row with the European Union, expressing hope that talks will stave off anti-dumping duties on Chinese shoe exports to the bloc.

A customer makes a selection of China-made shoes at a market in Yichang, central China's Hubei Province in this August 22, 2005 photo. EU will impose import duties as high as 20 percent on some leather shoes from China and Vietnam starting in April. [newsphoto]
The European Commission confirmed on Monday it had evidence of dumping by Chinese and Vietnamese exporters of leather shoes after finding manufacturers benefited from state intervention.

The commission, in charge of trade policy in the 25-member EU, declined to comment on measures it could take.

But a source familiar with the investigation said the Brussels-based executive would recommend duties of less than 20 percent, to be phased in from April 7.

Chinese Foreign Ministry spokesman Liu Jianchao said frictions were bound to arise as Sino-EU trade grew.

"We hope the two sides resolve any problems on the basis of mutual benefit and mutual respect," he told a regular news conference.

Liu noted that Beijing and Brussels settled a number of trade disputes last year through negotiations. Chief among these was sparked by a surge in Chinese exports of textiles following the abolition of global quotas.

The shoes case is one of a proliferation of anti-dumping actions involving China, whose exporting prowess is raising political hackles in Europe and the United States.

Brussels is also probing whether China exports plastic bags more cheaply than it can produce them, and just last week the EU settled a similar row over iron castings.

Chen Zemei, a director of Zhejiang Saina Group, said it was absurd for the EU to rule that Chinese shoe makers were dumping goods in Europe. Anti-dumping inspectors from Brussels combed his company for five days last November.

"Most of us are private enterprises and our biggest priority is to make money, so it is impossible for us to sell our products at a price lower than costs," said Chen.


Zhejiang Saina is one of China's biggest leather shoe makers. It can make more than 4 million pairs a year and sells about half of its output to Europe.

Chen said his firm has a profit margin of 5-10 percent and gets no breaks from the government except the rebate of value-added tax on exports -- the same treatment EU firms enjoy.

Slapping on duties would hurt his firm but would also hurt European consumers, Chen said.

"If the anti-dumping duties are finally imposed, we will have no choice but to pass them on because we have no room to reduce our production cost," he said.

Industry sources say Brussels plans to exclude sports shoes and children's shoes from the possible anti-dumping measures, which the European Commission says would add less than 1 euro ($1.20) to a pair of shoes that cost 35 euros or more.

Zhu Feng, chief secretary of the Wenzhou Shoe Industry Association, said the threatened duties could send a lot of smaller companies to the wall. Wenzhou, south of Shanghai, is one of the main shoe-making centres in China.

"The anti-dumping tax would have a big negative impact on Chinese shoe makers, but it would be even greater on EU shoe retailers and buyers," Zhu said.

The European Union will impose import duties as high as 20 percent on some leather shoes from China and Vietnam starting in April, to prevent the footwear from being sold below cost on the bloc's markets.

The EU, which last year imported 120 million pairs of shoes from Vietnam and 95 million pairs from China worth 5 billion euros ($6 billion), said it will impose rising tariffs over six months, to a maximum of almost 20 percent of their value. China has threatened to retaliate if the European Trade Commissioner Peter Mandelson levies the additional duties.

"This is a very consumer-hostile measure and would be particularly burdensome to low-income families as well as traders, importers and retailers," said Ralph Kamphoener, senior trade adviser at EuroCommerce, which represents European companies that employ more than 22 million people in the EU.

The EU's proposal adds to a series of disputes with China over textile and apparel imports and piracy of copyrights, trademarks and patents. China's emergence as an industrial economy has also provoked tensions in the U.S., prompting calls from lawmakers and the administration of President George W. Bush for a revaluation of the yuan.

By phasing in the penalties from April 7, the European Commission, the bloc's executive agency, hopes to avoid the kind of distribution blockages that occurred when the EU limited imports of Chinese textiles last year. The categories under investigation range from tennis shoes to stiletto boots covering 8 percent of all shoes sold in Europe.

Possible Solutions

"China's offer may be to limit exports as a possible resolution to this dispute," said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation with the Ministry of Commerce in Beijing. The Chinese government may either impose an export tariff to slow shipments or a cap on exports, Mei said. "What the government may offer will depend on talks to come with the EU," he said.

Commission spokesman Peter Power said there is "compelling evidence of serious state intervention in the leather footwear sector" in both China and Vietnam. That intervention takes the form of "cheap finance, non-market land rent, tax breaks and improper asset valuation leading to dumping," he told journalists in Brussels on Monday, adding that "there's evidence of both dumping and injury."

Mandelson will propose the punitive duties to the EU's anti-dumping committee on March 9.

Exports Climb

China's clothing and textile exports increased 21 percent to $115 billion in 2004, China Textile News reported last week, citing customs data. Foreign sales of footwear, Vietnam's third- biggest export in 2005, rose 7 percent in January from a year earlier to $300 million, with the 25-nation EU as the top destination, accounting for two-thirds of its exports.

Companies including Adidas-Salomon AG, Puma AG and Clarks Ltd. have voiced opposition to higher footwear duties. A group representing importers of brands including Timberland, Kickers, Rockport and Ellesse last month urged Mandelson to exempt shoes costing more than 50 euros a pair from any extra duties.

Brussels-based EuroCommerce estimates the duties will boost the price of a pair of shoes by between 5 euros and 20 euros. The commission said the average import price for shoes under investigation is 8.50 euros and the average retail price 35 euros and that there are ``margins within the supply chain to absorb a small additional import duty.''

'Major Loophole'

While the National Association of Italian Shoemakers welcomed the planned duties, failing to include all types of shoes is a "major loophole," said Leonardo Soana, president of the lobby. "This may reduce the effectiveness of the measures that will be introduced," he said.

In January, the EU decided that none of the Chinese or Vietnamese manufacturers involved in the case could claim they operate according to international business norms. By denying the makers "market-economy status," the commission won't rely on Chinese and Vietnamese data when calculating costs and whether sales were below market prices.

The duties would "have a serious impact on the export of Vietnamese shoes to the EU," said Do Thanh Hong, a vice chairman of the Vietnam Leather and Footwear Association. "Importers will buy shoes from countries that have lower prices, for example, Indonesia."

'Social Problems'

Vietnam's trade ministry wrote to the commission in December asking for an end to the probe, which began last July. The Leather and Footwear Association says Vietnam's footwear industry employs more than 500,000 people and imposing anti-dumping duties would damage the Vietnamese economy and cause "social problems."

In contrast to China's threatened retaliation, Vietnamese Deputy Foreign Minister Le Van Bang said last month during a visit to Brussels that his country is looking for a compromise to the anti-dumping duties on its shoe exports to the EU.

China makes 8 billion pairs of shoes a year, according to the country's commerce ministry. Guangdong Province, the center of China's shoe manufacturing, accounted for about half of that production in 2004 and exported 2.5 billion pairs.

Vietnamese shoe companies are beginning to shift their focus to the U.S. market, largely due to the impact the EU's anti-dumping case is having on exports to Europe, Sai Gon Giai Phong newspaper reported last month.


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