Are EU shoe duties an economic mistake?
The decision to impose protective duties on imports of leather shoes from China and Vietnam into the European Union has been slammed by leading footwear retailers, importers and trade groups as a costly economic exercise. But just how real are fears of price hikes, job losses and even suggestions that the move will pave the way for import tariffs on other goods from China? Leonie Barrie reports.
Footwear shortages, skyrocketing prices and long-term, harmful repercussions across the European economy are just some of the likely ramifications of unpopular plans to slap anti-dumping duties on Chinese and Vietnamese leather footwear imports.
Angry retailers and industry groups have stepped into the fray and are warning that now the battle for cheap shoe imports has been lost, European consumers should prepare themselves for more steep prices rises on items ranging from jeans through to furniture.
"You can say goodbye to those designer trainers you got in the January sales…that £5 pair of jeans," is the message from the British Retail Consortium, which on Friday (24 March) launched its 'How Much?!' campaign to highlight the threat of more EU import tariffs on goods from China.
BRC Brussels director Alisdair Gray says: "Many other items, from clothes to household goods, could also be affected if the European protectionist lobby has its way."
The anti-dumping duty on shoes, which was approved by EU member states last week (23 March), is likely to affect over 225m pairs of leather shoes sold in the European market - almost 10% of all the shoes consumed by Europeans. And it is described by Kevin M Burke, president and CEO of the American Apparel & Footwear Association (AAFA), as a "serious economic mistake."
Martin Salisbury, finance manager at retailer Clarks International, told just-style: "This is a huge issue for us at the moment, and while it's reassuring that a decision has been reached, we think it's the wrong one.
"We believe the overall investigation has been flawed and that the decision [to impose tariffs] will probably damage those companies that modern European business depends on for its future growth." UK-based Clarks has spent the last decade switching production from Street in Somerset to Vietnam and China, from where it imports around 65% of its products.
The provisional duties will be phased in over a five-month period from 7 April to 15 September. They will start at about 4%, rising to 19.4% for China and 16.8% for Vietnam at the end of the five-month period. The duties are due to last for an initial six-month period but could be extended for up to five years, and are in addition to the normal 8% tariff already imposed on footwear imports into the EU.
However, one small victory for retailers is Brussels' decision to exclude hi-tech sports shoes and children's shoes from the measures.
Some of the grimmest warnings suggest that the move could backfire and lead to job losses in the EU - the very region the duties are designed to protect.
The European Commission is calling on retailers to absorb the cost of this duty into their margins, but as Alisdair Gray explains: "As the principal variable cost is labour, it appears that retailers are being asked to reduce the number of people they employ."
"Painful" is how Martin Salisbury describes the measures, warning that the impact will be felt across the supply chain from manufacturers to consumers. He says: "A 20% hike in additional costs will be very difficult for us to accommodate. We will therefore have to re-evaluate our supply chains - and it's likely that the pain will be shared by many people."
Around two-thirds of Clarks' adult footwear will be hit. "Phasing-in the duties won't change anything, since our supply chains are a lot longer than this," Salisbury explains.
US shoe companies are also rallying against the duties. Footwear maker Timberland calculates it will cut $10m from its 2006 operating profits, and is laying out plans to deal with the duties - including potential price increases on footwear products sold in Europe.
While Wolverine World Wide Inc, whose brands include Hush Puppies, Sebago and Wolverine, says it has spent the last eight months trying to limit the impact of possible measures. Nevertheless, it cautions 2006 earnings per share will be near the low end of forecasts.
The European Commission began its investigations last year following complaints that some European shoe manufacturers were being unfairly hit by the dumping of shoes from China and Vietnam on the European market.
This was followed by a nine-month probe which found "compelling evidence" of serious state intervention in the leather footwear sector in China and Vietnam - including cheap finance, tax holidays, non-market land rents, and improper asset valuation.
Chinese leather footwear is being sold in Europe at about 80% of its normal value, and Vietnamese shoes are being sold at about 50% of their normal value, the EC said.
But critics point out that The Commission's findings on dumping appear to be skewed by the denial of market economy status to Chinese and Vietnamese suppliers and the use of Brazil as comparison country.
Which, as Clarks' Martin Salisbury explains, is "like comparing apples and marshmallows." The Commission didn't take into account Brazil's higher wage rates, its heavily protected market and duty levels, he adds.
Even the EU voting process is seen as a farce. The decision to impose the duties actually received only three positive votes out of 25 EU member countries, with 11 abstentions - but those abstentions counted as "yes" votes under EU law.
Not surprisingly, protective measures are violently opposed by retailers and importers who warn they will damage high-value sectors of the European footwear industry like design, advertising, marketing, sales and logistics - and push up prices on the high street.
AAFA's Kevin Burke believes prices will double, if not triple - "if consumers are able to find the shoes and brands they want on the store shelves at all."
British Retail Consortium director Alisdair Gray says: "Currently, the average net margin for retailers is around 5%. When the new duties are imposed, shoe retailers will do their utmost to keep prices stable by finding new sources of product. However, in the short term, the duty will wipe out any net margin made on shoe sales.
The BRC calculates that for a pair of shoes selling at GBP35, the EU duty of 19.4% will add an extra GBP1.60 to the overall cost. Subtracting import costs (GBP8.50), VAT (GBP7.0), overheads (GBP11.50) and labour (GBP6.80) leaves the retailer selling at a loss of GBP0.40.
However, in an attempt to play down fears, the European Commission argues that duties concern just nine pairs of shoes from every 100 pairs bought by Europeans.
And somewhat ironically, the decision has also failed to please European shoemakers in countries such as Italy, Spain and France, since they were seeking even higher duties.
The EU member states are due to meet again in July to vote on definitive five-year duties, which could apply until 2011. But opposition groups say they will continue to pressure the European Commission until then to analyse the overall effect of these duties on retailers. This is one row that looks set to rumble on for some time yet.
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