In approving the compromise suggested by Trade Commissioner Peter Madelson, the European Commission has decided to institute a surveillance mechanism to make sure that importers will not circumvent the new provisional regulations by declaring certain casual or adult shoes as athletic or children’s footwear, which will be exempted.
Following intense lobbying by FESI, the European sporting goods industry federation, Mandelson and the Commission agreed to exclude so-called STAF (Special Technology Advanced Footwear) shoes coming in at more than €9.00 a pair from the planned provisional anti-dumping duties on leather shoes from China and Vietnam, mainly because there is virtually no production of this type of shoes in the European Union. These types of shoes were already exempted from the previous import quotas set up by the EU on leather shoes from China, which were lifted at the beginning of 2005. The Commission has also accepted Mandelson’s recommendation to exclude any children’s footwear up to 24 centimeters in length.
Other leather shoes will be subject to progressive provisional anti-dumping duties. The EU will levy a tax of 4.8 percent on Chinese shoes and 4.2 percent on Vietnamese on Apr. 7, rising gradually to 19.4 and 16.8 percent five months later. This would be on top of the normal 8 percent import duties applied by the EU on these types of shoes. However, the European Council of Ministers will have to vote then to make the duties permanent for the next five years, but it may change the regulations. Mandelson has already indicated that he would like to obtain a negotiated solution with the Chinese government, which has called his charges of state intervention and unfair trade “groundless.”
Mandelson has presented his proposals as a “middle ground” among those of the member governments, some of which wanted more protection and others wanted less or none at all. His compromise passed by a very thin majority at a meeting of the advisory anti-dumping committee one week ago. Amajority of the committee members voted for the measures or abstained, and under the rules of the committee such a majority means approval. It subsequently emerged that only three states - Belgium, Malta and Slovenia - voted in favor of the compromise. Only ten of the 25 member governments voted against: Denmark, Estonia, Finland, Germany, Ireland, Lithuania, Luxembourg, Netherlands, Slovakia and Sweden. Eleven others, including Greece, France, Italy, Portugal, Spain and the UK, abstained. Cyprus was not represented.
The Italian government insisted for a new definition of STAF shoes that would exclude simple city shoes, walking shoes, heavy-duty boots, chelseas and other types of booties. The Italian shoe industry association, ANCI, used its windfall revenues from the MICAM to finance a costly advertisement in London’s Financial Times where it launched an appeal to Mandelson to take these items off from the STAF list, while defining as “inacceptable” the exclusion of children’s footwear, the level of the proposed duties and their gradual phase-in.
Technically, many sports brands will have to pay duty on so-called lifestyle or fusion or low-profile shoes, which are becoming an important part of their collections sold in Europe. Like the higher value of the dollar, the related duties will directly affect their gross margins for the Fall/Winter 2006/07 collection, where wholesale prices have already been set. Horst Widmann, chairman of FESI, has already indicated that these prices will have to go up for the subsequent season, unless Brussels repeals the anti-dumping measures.
Timberland issued a warning to investors yesterday, estimating at $10 million the negative impact of the duties on its operating profits for this year. The company says it is advancing strategies in response to the European Commission’s action, including potential price increases on footwear products sold in Europe. It will try to work with the Commission to find a constructive solution.
Earlier, a report from China suggested that Timberland cancelled a supply contract with Kingmaker because the Chinese producer had refused to share the extra cost of the duties by lowering its own gross margins by 5 percentage points. Timberland was the largest customer of Kingmaker, representing 37 percent of its revenues, but contrary to the report in the South China Morning Post, it will only lay off 15-20 percent of its workforce of 20,000 employees, as two other long-time clients, Skechers and Clarks, plan to boost their orders from the Chinese company.
The Italian government said last week that it had won a battle, but not yet the war against China’s allegedly unfair trade practices.
The Italian government has been pushing also for the adoption of mandatory labels of origin on any footwear imported from outside the EU. A committee of the European Commission voted in favor of this measure last Dec. 16, but the European Council has been postponing its endorsement. Italian government sources indicated a few days ago that they were hoping for action by the Council tomorrow, but sources in Brussels indicated today that the vote is being adjourned once more (more in Shoe Intelligence).
