Hong Guangsheng, General Manager of Guangzhou Yunfang Shoes Co., is feeling the heat over his company’s exports to Europe. According to a contract he signed with an Italian client in early April, the volume of orders has taken a 50 percent dive from what was originally envisaged, down from a targeted 40,000 pairs to 20,000 pairs, while item prices have also fallen. Hong’s company deals mainly in a range of popular leisure shoes for women and has exported over 500,000 pairs of shoes to EU countries, accounting for a quarter of its total exports.
　　Hong’s predicament stems from a European Commission announcement on March 23 that slapped provisional anti-dumping duties on leather shoes from China and Viet Nam. The duties on Chinese shoes started at 4 percent from April 7 and are expected to rise to 19.4 percent in the following six months. The European Commission will make the final decision in October whether to impose anti-dumping duties on China-made leather shoes in the next five years.
　　In announcing the decision, EU Trade Commissioner Peter Mandelson said he had to counter “unfair distortions of trade” such as “disguised subsidies” and “state-supported dumping.”
　　The EU resolved on June 30 and July 7, 2005 to conduct anti-dumping investigations on China-made safety shoes worth $52.55 million and some footwear with leather uppers valued at $730 million. It is the largest such case in 10 years, since more than 1,200 Chinese shoemakers and 4 million workers are involved. At present, the EU has not placed provisional anti-dumping measures on safety shoes from China.
　　China is now the world’s largest shoe manufacturer and an important shoe exporter. In 2005, local companies produced 9 billion pairs of shoes, exporting 6.9 billion of these pairs. Among the shoes China exported, 13 percent were sold to Europe.
　　Most Chinese shoemakers are of the opinion that the EU’s anti-dumping decision lacks fairness and legitimacy. To look for a way out, more than 180 shoe companies in China have formed an alliance to respond to the EU’s probe.
　　
　　Challenged decision
　　
　　Since June 2005, 130 Chinese shoemakers have received the EU’s dumping charges. Among them, 13 firms were ordered to respond to the sample investigation in the EU’s intensified anti-dumping probe and all of them were denied “market economy” status.
　　Both government officials and industry insiders blame the EU’s decision in this case, as it refers to China’s market economy status, for lacking a practical and legal basis. The shoemaking industry is one of the most open industries in China and 98 percent of shoemakers are private or foreign-funded.
　　Ye Shengxing, an attorney at Gaomingtianda Law Firm, said that since the EU amended related laws in 1998, allowing the granting of the market economy status to single companies, 20 percent of Chinese investigated companies have received the market economy status and then obtained good customs duties, in some cases even zero tariffs.
　　However, in the recent shoes case, all the investigated companies, including foreign-funded companies, were denied the market economy status, which is unprecedented. For example, seven investigated companies from Guangdong Province are all foreign-funded and were favored to receive the market economy status, yet none succeeded.
　　According to Wu Hang, Secretary General of the Association of Guangdong Shoes Manufacturers, the EU has accused the Chinese Government of providing tax subsidies to its shoemakers, foreign-funded companies included, and, on this basis, denied the market economy status of the probed foreign-funded companies.
　　“If this reason stands, have all foreign-funded enterprises gotten unfair subsidies? The Chinese Government grants preferential policies to all foreign investors in China, but no special policies to shoemakers in terms of land prices and taxes,” said Wu Zhenchang, Board Chairman of the Guangdong Chuangxin Shoes Co.
　　Ma Xiuhong, Chinese Vice Minister of Commerce, said at this year’s annual session of the Boao Forum for Asia, “European companies are benefiting from China’s preferential policies to foreign investors, but their governments are striking at Chinese products with this excuse. It is inconceivable and unfair.”
　　The EU’s other accusation is that the Chinese Government intervenes in the sales strategies of companies, that cannot make their own decisions about the markets they wish to sell to.
　　“Since China entered the World Trade Organization, it has opened its market. As a Taiwan-funded company, we can decide by ourselves where to sell our products. Our financial system, daily operation and management are all decided by the investors without government intervention,” said Wu of Chuangxin Shoes.
　　The comparatively low prices of Chinese shoes are an important factor for the EU to launch anti-dumping investigations.
　　In general, a medium-sized Chinese shoe company employs 1,000-2,000 workers and some large companies, such as Guangzhou Wanbang Shoes Co., that is sampled by the EU, employ more than 10,000 workers. Compared with small shoemakers in countries like Italy and Spain, Chinese low- and middle-end shoes have obvious cost advantages because of the economy of scale.
　　“This is a natural advantage, not dumping,” said Huo Xiaohong, Chairman of the China Chamber of Commerce for Import and Export of Light Industrial Products.
　　In the March 23 announcement, Mandelson said the anti-dumping measures were launched to “act against unfair trade” and “correct the injury caused to European leather shoe producers.”
　　Wu of Chuangxin Shoes told Beijing Review that Chinese shoe exports to Europe have long been restricted by quotas imposed by the EU. During the 2001-04 period, the quotas that the EU granted to China only grew 5-15 percent every year. The EU lifted import quotas on Chinese shoes from the beginning of 2005. However, just half a year later, it launched anti-dumping investigations in June 2005, involving exports from April 2004 to April 2005.
　　“Within such a short period of time, how can we deal damages to European shoemakers? Moreover, before 2005, Chinese exports were under the control of quotas, so how could this constitute dumping?” Wu said.
　　“Most of the shoes China exported to the EU are low- and middle-end products with low added value. It is impossible for them to directly compete with upscale shoes made in Italy and Spain and take their market shares,” said Chen Guorong, President of China Dongyi Shoes Co. Ltd.
　　According to Chuangxin’s Wu, the EU anti-dumping investigations are not transparent. “For example, the financial performance reports and related figures of the reportedly victimized European shoe companies are not publicized as business secrets,” he complained. “It is unfair. If you say you are injured, you should provide evidence! If you say these materials are confidential, aren’t ours secrets? Why must we publicize our materials but you can keep yours secret?”
　　
　　Protectionism helpless
　　
　　Wu believes it is unfair and there is no evidence to attribute the decline of the European shoemaking industry to “competition” from Chinese manufacturers.
　　Behind the decline of the European shoemaking industry is the backdrop of globalization, Wu said, adding even without the Chinese shoemaking industry, it would be challenged by shoemakers of other countries.
　　“This cannot be blocked by the anti-dumping measures,” he continued.
　　Statistics from the Chinese Ministry of Commerce show, that before the EU lifted import quotas on Chinese shoes, the production capacity of shoemakers in EU countries had fallen from 1.1 billion pairs to 700 million pairs between 1998 and 2004.
　　According to Wu, the world’s shoe manufacturing center was in Italy in the 1960s and shifted to Japan and South Korea in the 1970s. In the 1980s, it went to Taiwan and moved to the Chinese mainland and Southeast Asia in the 1990s. At present, the shoemaking industry is a sunset industry in developed countries and, in the EU, only Italy and Spain still make shoes. Against the changing global division of labor, however, they have no competitive advantages.
　　Zhang Hanlin, a professor at Beijing-based University of International Business and Economics, thinks that anti-dumping measures are meaningless to improve production and sales of Italian and Spanish shoemakers. “Even if the EU imported less shoes from China, it would buy shoes from other developing countries with labor price advantages,” Zhang said.
　　
　　Countermeasures in pipeline
　　
　　Guangdong Province, as well as Wenzhou in Zhejiang Province and Quanzhou in Fujian Province, are major bases of the Chinese shoemaking industry and most of the companies affected by the EU anti-dumping measures are located in these three areas. Since the EU announced the anti-dumping measures in late March, more than 150 local shoe companies have joined the alliance to respond to the charge against them, denying that they have damaged the European shoemaking industry.
　　“We must lose no time in collecting evidence to prove that there is no dumping from Chinese shoemakers,” Wu of Chuangxin Shoes told Beijing Review.
　　In the past two months, the alliance has done its utmost to find new evidence and engage prestigious investigation institutions and economic analysts in Europe to get the most detailed and persuasive analysis report to support their defense.
　　Sources with the Wenzhou Shoes and Leather Industry Association say that before the EU makes the final decision in October, they will explore all avenues to lobby for an overturn.
　　At the same time, some Chinese shoe manufacturers are also considering developing new markets.
　　“Chinese companies cannot just depend on some orders from Europe and we can develop the market in some other countries,” said Zhou Yaohua, Vice President of China Dongyi Shoes Co. Ltd.
　　Some companies are paying more attention to developing the domestic market, since, according to Luo Zhigang, Director of the General Office of Hongqingting Group, China, with a population of 1.3 billion, is the largest shoe market in the world.
　　It is more meaningful for the Chinese shoemaking industry to improve industrial structures than passively dealing with foreign anti-dumping measures, said Zhu Feng, Secretary General of the Wenzhou Shoes and Leather Industry Association.
　　
　　Anti-Dumping Is Double-Edged Sword
　　
　　Chinese shoemaking industry insiders, such as Zhu Feng, Secretary General of Wenzhou Shoes and Leather Industry Association, have emphasized that the interests of China and the EU have become so intermingled amid the global division of labor in the shoemaking industry that both parties will suffer from unilateral protectionist measures.
　　According to Zhu, after Chinese shoes are subject to punitive tariffs, the export costs will inevitably increase so that the price advantages are nullified. If the final decision made by the EU fixes the anti-dumping tariff rates, European importers will possibly have to transfer their orders from China to other countries. As a result, some small companies may fold. Even if the EU abolishes the anti-dumping duties in the future, orders would not come back to China.
　　However, with 20 years’ development, the Chinese shoemaking industry has advanced manufacturing capabilities, good information networks, convenient transportation channels and experienced marketing personnel. “The likely order transfer will waste the resources of both sides,” Zhu added.
　　In Zhu’s analysis, the anti-dumping measures will also hurt EU investors in China. According to Chinese figures, there are 478 EU-funded shoe companies in China with the paid-in capital of $737 million. Most of their products are sold back to the European market. Moreover, equipment and material suppliers in the EU will also be influenced. In recent years, China has imported huge amounts of shoemaking equipment and leather materials. According to China’s customs statistics, the country bought $54.04 million worth of shoemaking machines from the EU in 2004, growing 26 percent year on year. In the first 11 months of 2005, Chinese companies imported $570 million worth of leather from the EU suppliers, expanding 27 percent over a year ago.
　　Take Wenzhou Saina Group Co. Ltd. as an example. Every year, the company imports $6.4 million of equipment and raw materials from the EU. “Our European suppliers of raw materials and equipment all feel nervous, being afraid of losing the Chinese market,” said Chen Zemei, Board Chairman of the company.
　　Wu Chunyue, General Manager of Aokang Group’s import and export division, also estimates that at present, 20-30 percent of raw materials that Chinese shoemakers need are imported from the EU.
　　After it collects anti-dumping duties, costs for Chinese companies will increase and some of them may reduce production, influencing the procurement of raw materials from Europe. “In fact, most EU members are against the European Commission’s decision of imposing anti-dumping duties on leather shoes made by China and Viet Nam,” Zhu said.
　　

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