Shoe Made Hu 2: China Takes EU to WTO on Shoes

If the title of this post sounds like a bad kung fu movie, let me explain. Probably inspired by the Bush incident in Iraq, some guy decided to throw a shoe at Chinese President Wen Jiabao while he was speaking at fancy pants Cambridge University. With this incident in mind, I entitled a post featuring excerpts from an interview with Wen Jiabao in the Financial Times Shoe Made Hu since it rhymes nicely with his boss's name. In normal situations, I'd have featured a video clip of AC/DC's "Who Made Who." However, as I've overdosed on video clips in recent days, I 'll leave you to view it on your own if so desired since these things slow down page loading times considerably.

Anyway, the reason for this post is that the Chinese have now taken the EU to task for continuing to levy what it believes are unjust anti-dumping duties on footwear from the PRC--another footy episode involving China. Late last year, the EU extended anti-dumping duties on Chinese footwear by default:

EU-China trade tensions were further strained on Thursday (4 February), after China filed a formal complaint with the World Trade Organisation over European shoes tariffs. The Chinese government said European tariffs "violated various obligations under the WTO and consequently caused damage to the legitimate rights and interests of Chinese exporters." Brussels immediately hit back, saying the tariffs had been imposed in response to the "unfair trade practices" pursued by the Asian powerhouse.

"Anti-dumping measures are not about protectionism; they are about fighting unfair trade," said the European Commission's acting trade spokesperson, John Clancy. "The decision to impose measures was taken on the basis of clear evidence that dumping of Chinese products has taken place and that this is harming the otherwise competitive EU industry," he added...

On 22 December, EU countries voted to extend anti-dumping duties on Chinese and Vietnamese leather footwear imports for a further 15 months as of January 2010. In total, 13 member states voted against the commission's proposal to extend the duties, nine voted in favour and five abstained. Under EU anti-dumping rules, abstentions count in favour of a commission proposal. The European duties add between 9.7 percent and 16.5 percent to the import price of Chinese shoes and 10 percent to Vietnamese shoes.

It is interesting how European Council (EC) voting functions, where abstention equals assent. To me, this gives European nations that are wary of offending China but are keen on maintaining these sanctions a neat loophole. Interestingly enough, Lord Mandelson--the fellow who previously implemented the anti-dumping duties while still at Brussels--recently encouraged that they be removed. Prior to becoming the first EU foreign affairs minister, then-EU Trade Commissioner Baroness Ashton (Mandelson's successor) decided against recommending their removal, thus setting the stage for the vote mentioned above that has extended the duties. The vote itself reflects an internal split: Italy and Spain would like to shield their (remaining) shoe manufacturers, while countries that hardly make them anymore and import lots of them like the UK and the Netherlands have voiced opposition. Clarks, the largest shoe retailer in Britain, is one of those on China's side for obvious reasons. From the FT in November of 2009:

Extending anti-dumping duties against footwear from China and Vietnam puts Europe's long-term commercial relations with both countries at risk, the UK business secretary has warned. There was no longer justification for the duties, said Lord Mandelson, who initiated the measure in 2006, as he expressed concern about waning enthusiasm for free trade across the European Union as a result of the economic crisis. "You have a more inward-looking 'let's keep hold of what we have' attitude growing within member states," he said after a speech in Brussels where he called for a stronger and more decisive Europe. "The job of the European Commission is obviously to take note of the political pressures but not to be swayed by them," he said.

Footwear duties have proved highly divisive since Lord Mandelson, as European trade commissioner, first imposed them when low-price imports took market share from small European manufacturers, particularly in Italy and Spain. At the time, the Commission reported "compelling evidence" of dumping and the trade commissioner said: "It is important that we act against unfair trade while encouraging legitimate and competitive trade from emerging economies. We do not target China and Vietnam's natural competitive advantages, only unfair distortions of trade."

Tariffs of 16.5 per cent for Chinese imports and 10 per cent for Vietnamese were set for a two-year period instead of the typical five, reflecting the deep misgivings of other member states, such as the UK and the Netherlands, which have derided them as protectionist. Large footwear retailers, such as Clarks and Adidas, have also opposed the measures.

The Commission and member states are expected to reach a final decision on the matter on November 19. Baroness Ashton, trade commissioner, last month issued a preliminary recommendation for a 15-month extension, arguing that European market share had only just begun to recover.

Now back to the present: Mandy's changed reasoning is utterly obscure to me. In any event, the European footwear trade association is siding with China:

The European Footwear Alliance, which represents several big global footwear brands, including Adidas, ECCO and Timberland, and opposes the duties, said in a statement that it “shares China’s view” that the E.U. decision was based on flawed analysis. “Ironically the measure hurts European business and consumers the most,” it said.

It will be interesting to see how this matter plays out. As with the US, China-EU relations are not hunky-dory. I guess that's always going to be the danger with mercantilist strategies.

UPDATE: I almost forgot--here is the Ministry of Finance and Commerce (MOFCOM) statement in rather mangled English.