Eu Anti-dumping Lawsuit Against Vietnam - What Can Be Learnt From the Footwear Case

Graduation thesis

EU ANTI-DUMPING LAWSUIT AGAINST VIETNAM - WHAT CAN BE LEARNT FROM

THE FOOTWEAR CASE?

ACKNOWLEGEMENTS

First and foremost, I would like to express my special thanks to my supervisor,

Phan Thi Hien Giang, MSCs., for her professional and inspirational suggestions,

corrections and advice in bringing this thesis to completion.

I am also grateful to Hanoi Foreign Trade University, especially those teachers at

the English Faculty, for giving me the opportunity to study in such an academically

stimulating program in Bachelor of Business English. The course has provided me with

comprehensive knowledge and useful skills in business and foreign trade so that I am able

to fulfill this thesis and have the courage to embark on the challenging journey of life-long

learning.

My sincere thanks are due to the World Bank Library and National Library, the

librarians, staff and the administrative office of the Hanoi Foreign Trade University for

providing me the valuable materials and assistance.

I am deeply indebted to my close friends, my relatives and my boyfriend who have

always supported and encouraged me to finish the thesis.

Last but of course not least, I would like to share this moment of happiness and

sense of achievement with my parents and my brother, who have always stood by my side

and rendered me enormous support and unfaltering love during the whole process of my

study.

Le Thanh Hai - A4 - BBE - K41 1

Graduation thesis

ACKNOWLEGEMENTS...............................................................................1INTRODUCTION............................................................................................4

Background to the study................................................................................................4Objective of the study....................................................................................................4Research questions.........................................................................................................5Structure of the thesis....................................................................................................5Scope of the study..........................................................................................................5Research methodology...................................................................................................5

Chapter 1..........................................................................................................7LITERATURE REVIEW...............................................................................7

1.1. Dumping in international trade....................................................................71.1.1. Definition.............................................................................................................71.1.2. Impacts on importing countries and international trade......................................8

1.1.2.1. Impacts on importing countries...................................................................81.1.2.2. Impacts on international trade......................................................................8

1.2. Anti-dumping law...........................................................................................91.2.1. WTO's anti-dumping law.....................................................................................9

1.2.1.1. Determination of dumping.........................................................................101.2.1.2. Anti-dumping measures.............................................................................14

1.2.2. EU's anti-dumping law......................................................................................161.2.2.1. Determination of dumping.........................................................................17

1.3. Comparison between WTO and EU anti-dumping laws..........................22Chapter 2........................................................................................................25THE FOOTWEAR CASE.............................................................................25

2.1. Overview of the Vietnam footwear industry..............................................252.1.1. The importance of Vietnam’s footwear industry...............................................252.1.2. Footwear exports to the European Union..........................................................30

2.2. Overview of the EC's anti-dumping petition.............................................312.3. The petitioner's arguments..........................................................................32

2.3.1. Market economy treatment................................................................................332.3.1.1. Business decisions.....................................................................................342.3.1.2. Accounting.................................................................................................352.3.1.3. Assets and 'carry over'................................................................................362.3.1.4 Legal environment and currency exchange................................................37

2.3.2. Individual treatment...........................................................................................372.3.3. Vietnam's selling under the normal value..........................................................372.3.4. Injury..................................................................................................................39

2.3.4.1. Macro-economic indicators........................................................................402.3.4.2. Micro-economic indicators........................................................................41

2.4. The subject country's arguments................................................................432.4.1. Market-economy treatment................................................................................442.4.2. Level of ‘injury’ to EU producers.....................................................................452.4.3. Inappropriate choice of surrogate country.........................................................49


Graduation thesis

2.4.4. Effects on interest of the Community................................................................502.5. Summary.......................................................................................................51

Chapter 3........................................................................................................54RECOMMENDATIONS AND LESSONS LEARNT................................54

3.1. Conclusions and recommendations............................................................543.1.1. Diversify the markets outside the EU................................................................563.1.2. Diversify the product range...............................................................................583.1.3. Enhance model of business transfer..................................................................583.1.4. Improve competitiveness...................................................................................59

3.2. Lessons learnts..............................................................................................603.2.1. Fully understanding on international trade law concerning dumping issue......603.2.2. Strengthen market economy in Vietnam...........................................................623.2.3. Domestic enterprises must be well-prepared.....................................................633.2.4. Create good public relation................................................................................64

CONCLUSION..............................................................................................66BIBLIOGRAPHY..........................................................................................67


Graduation thesis

INTRODUCTION

Background to the study

In recent years, a great number of bilateral and multilateral trade agreements have

been signed between Vietnam and other countries and international organizations, which,

among other things, have provided greater access for Vietnamese goods to the global

market. However, several kinds of Vietnam exports have been accused of being sold at

dumped prices in some foreign markets. In particular, anti-dumping tariff was imposed on

Vietnam by the European Union on glutamate in 1998, by Poland on gas lighter in 2000, by

Canada on garlic in 2002, by the US on catfish in 2002, shrimp (2003), woodwork (2004)

and again by the EU on bicycles in 2004. On July 2005, the European Commission officially

lodged yet another dumping lawsuit against Vietnamese footwear products exported to the

EU market. Such series of lawsuits has raised massive concern for Vietnamese producers, as

it has had a negative impact on international economic integration process of Vietnam, as

well as shown that Vietnam has not adequately prepared for a bigger "playing field".

Active integration inevitably entails proactive study about foreign markets.

Nevertheless, international markets in general, and the EU market in particular have different

regulations and trading practice that requires deep understanding to defend oneself from

implicit risks. Although dumping and anti-dumping suits are not something new to Vietnam

as it was several years ago, and Vietnam has been moving on a very steep learning curve, it is

still necessary for Vietnamese enterprises to deepen their understanding by further analysis if

they are to avoid anti-dumping petition as they break into markets abroad.

Objective of the study

This graduation paper, therefore, aims to furnish Vietnamese exporters and concerned

government agencies with a structured approach to anti-dumping lawsuits by contributing a

closer look at anti-dumping regulations and experience from the footwear case. With this

study, Vietnamese exporters will hopefully be able to gain the essential ‘weapon’ to defend

themselves when there is a complaint filed against them, and more importantly, to avoid

being challenged and getting exhausted in the daunting investigation and lawsuit process.


Graduation thesis

Research questions

The key question is: "How can Vietnamese exporters prove that Vietnam leather footwear

is not being dumped into the EU market?" To seek answer to the question, the following

sub-questions will be addressed:

- What are the differences between antidumping law of WTO and that of the EU?

- How did the EC accuse Vietnam of dumping leather footwear in the EU market?

- What were the arguments used by Vietnam in the footwear lawsuit?

- What are the lessons learnt for Vietnam for future dumping and antidumping lawsuits?

Structure of the thesis

To achieve the above objectives, the thesis is divided into of three chapters. Chapter

1 lays the theoretical ground for the paper by defining the two concepts: dumping and anti-

dumping, and presenting different perspective of anti-dumping according to GATT/WTO,

and the EU. Chapter 2 will then move on with an actual case study: the footwear case. It

begins with an overview of the footwear industry in Vietnam, and then provides a detailed

description and analysis of the footwear dispute procedure, the arguments used by two

sides: the EU and VN. Finally, the last chapter will conclude the paper with some

recommendations for settling other dumping disputes in the future; for avoiding anti-

dumping lawsuit; and avoiding negative consequences from the case.

Scope of the study

Dumping and anti-dumping lawsuits are a very broad topic. However, this study

only focuses on a particular case: the VN - EU dispute on leather footwear. This will serve

as an empirical but structured approach that Vietnamese current and potential export

enterprises need to familiarize with if they are to survive and succeed in the international

market.

Research methodology


Graduation thesis

The report draws heavily on desk research, with data and information obtained from

the Official Journals of the European Union, Action Aids Vietnam, the Vietnam Leather

and Footwear Association, official and unofficial reports, various comments and figures

from published studies by experts in the field, newspapers, magazines, and the Internet.

This is supplemented by primary information and experience gathered in the field

verification exercise by the EU investigators to the footwear enterprises in Vietnam in the

summer of 2005.


Graduation thesis

Chapter 1

LITERATURE REVIEW

1.1. Dumping in international trade

1.1.1. Definition

According to article 2, part 1 of the agreement on implementation of article VI of the

general agreement in tariffs and trade 1994, "a product is to be considered as being

dumped, i.e. introduced into the commerce of another country at less than its normal value,

if the export price of the product exported from one country to another is less than the

comparable price, in the ordinary course of trade, for the like product when destined for

consumption in the exporting country". A question is raised: what are the reasons of

dumping activities in international trade?

In today’s global game of intense competition, dumping helps enterprises easily break

into and then dominate other markets. However, there are differences between the aim of

big companies and small ones, developed countries and developing ones. In respect of

small companies and developing countries, their products are less competitive and they

have to dump in an effort to sell their goods. With regard to big firms and developed

nations, they sell at a low price on importing markets to gain market share, furthermore, to

kick out competitors, and gradually dominate the importing markets. Once breaking into

importing markets, exporters are able to completely control them by low a price that is the

target of dumping activities. Secondly, in case countries are shortage of foreign currencies,

they may foster export by lowering goods' prices. However, dumping may happen beyond

the control of producers, exporters in some cases, for instance: bottle-neck, supply exceeds

demand, damageable inventory, etc.; they have to sell goods at lower prices to recover their

capital.


Graduation thesis

In short, there are many purposes to dump, but whatever purposes they have,

dumping still causes bad effects on importing countries, others nations, and international

trade.

1.1.2. Impacts on importing countries and international trade

1.1.2.1. Impacts on importing countries

Nowadays, dumping activities are becoming popular in the context of international

trade. Eliminating fair competition to break into markets, dumping has turned into an

obstacle against the trend of trade liberalization. In the short term, consumers gain benefit

from dumping because of cheap price. However, this is an unfair competition activity; it

can seriously damage domestic production of importing countries in the long term. As a

result, nations around the world try to fight against dumping in an attempt to prevent or

minimize dumped goods on their markets in case the imports of that type of goods have

caused or threaten to cause damage to a substantial part of the domestic industry.

1.1.2.2. Impacts on international trade

In the short term, dumping helps transaction of goods on international trade increase

in quantity. Normally, dumping enterprises intend to take over foreign markets, i.e.

competing with domestic producers or importers from other countries for market share. As

selling price is lower than equilibrium price on the market, in accordance with the law of

supply and demand, there will be a new equilibrium point, and an increase in quantity

demanded that will be met by exporters. Therefore, an increase in quantity demanded will

lead to an increase in quantity supplied, that means international trade will develop.

In the long term, when dumping enterprises control markets, and then raise selling

prices, quantity demanded will decrease gradually, and so does trading volume. Otherwise,

domestic enterprises better their competitive ability; vie with foreign exporters for market

share. If government of import country imposes anti-dumping tariff, import goods will no

longer be attractive for low price, so import quantity will reduce.


Graduation thesis

Dumping always bring benefit for consumers as lower price, wide selection of cheap

and diversified import goods. On the contrary, domestic producers suffer losses. Moreover,

workers will lose their jobs because of reducing production, or bankruptcy. If the interests

of consumers are bigger than the ones of home producers and the unemployed, the society

still benefits. On making decision of whether to levy anti-dumping tariff or not, many

nations consider this element.

Dumping and anti-dumping measures are controversial and complicated issues that

result in strained international trade relations, hinder WTO's target in establishing a

transparent, equal international business environment.

1.2. Anti-dumping law

As analyzed above, if the export price of a product exported from one country to

another is less than a comparable price, in the ordinary course of trade, for the like product

when destined for consumption in the exporting country. Therefore, by imposing anti-

dumping measures against foreign exporters, importing countries want to prevent exporters

from selling goods at price below its normal value. The main purpose of the imposition of

anti-dumping measures is to protect the domestic economy and home production from

unfair competition, furthermore, to create fair competition environment, a vital factor for

trade liberalization. Consequently, anti-dumping measures are said to be necessary, as they

set up the legal framework in which all players enjoy fair competition. Contrary to the

above purposes, domestic firms can strategically use this measure to target only foreign

firms they view as competitive rivals, some nations abuse anti-dumping measures to protect

domestic production which lead to commercial dispute. As a result, it is necessary to study

dumping and anti-dumping law to take part in international trade.

1.2.1. WTO's anti-dumping law

The Agreement on Implementation of Article VI of GATT 1994, commonly known

as the Anti-dumping Agreement, is a suggestive document for nations to refer to when they


Graduation thesis

set up their own anti-dumping law. However, WTO's members have to obey Anti-dumping

Agreement.

The Anti-dumping Agreement includes:

- Regulations on content: detailed provisions about methods and criteria for

determination of dumping, injury, causal link between the dumped imports and the alleged

injury.

- Regulations on procedure: provisions about investigation and anti-dumping duties

imposition.

- Regulations on dispute settlement among WTO's members concerning anti-dumping

issues.

- Regulations on competence of Committee on Anti-dumping Practices

1.2.1.1. Determination of dumping

A dumping case will be determined by comparing the export price and the normal

value of the product.

Export price

Export price is the selling price from country of origin or exporting country to

importing country. There are two ways of calculating export price:

- Export price is the transaction price between producer or exporter of exporting

country and importer of importing country.

- The export price may be constructed on the basis of the price at which the imported

products are first resold to an independent buyer, or if the products are not resold to an


Graduation thesis

independent buyer, or not resold in the condition as imported, on such reasonable basis as

the authorities may determine.

To apply the first method, there are two conditions: Export price is existing (product

is exported under sales contract between producer/exporter and importer); export price is

reliable (price is quoted in a normal sales contract). Documents like commercial invoice,

bill of lading, letter of credit... can be used to specify export price. Nevertheless, the export-

import activities are not always performed under the basis of a foreign trade sales contract

(for instance: export is to move goods from headquarter in one country to its agents in

another one, barter contract). Accordingly, there will be no transaction price to define

export price. Or price quoted in the contract is unreliable because of association or a

compensatory arrangement between the exporter and the importer or a third party. In these

cases, the second method will be used.

The normal value

"The normal value is the selling price of the like product on exporting market".

According to article 2.6 Anti-dumping Agreement "like product" ("produit similaire") shall

be interpreted to mean a product which is identical, i.e. alike in all respects to the product

under consideration, or in the absence of such a product, another product which, although

not alike in all respects, has characteristics closely resembling those of the product under

consideration. The Agreement provides three methods to calculate a product’s “normal

value”.

- The first is the main one which is based on the price in the exporter’s domestic

market. In case of dependent relations between producer and distributor in the exporting

country (so producer can offer cheaper price to distributor), the authorities of the importing

country may take selling price offered by distributor to the first independent importer to be

the normal price.

- The other two methods are alternatives. they are used when there is no domestic

price of the like product in the expiring country for the following reasons: a) When there


Graduation thesis

are no sales of the like product in the ordinary course of trade in the domestic market of the

exporting country; b) product is sold in the domestic market in special condition; c) the

volume of the sales in the domestic market of the exporting country is low (less than 5% in

comparison with the quantity of the like product sold in the importing market), however, in

case it is proved that the quantity of the sold product in domestic market is enough to

compare with the export price reasonably, the investigating can use the selling price of the

like product to define the normal value. The two alternatives are:

+ A comparable price of the like product when exported to an appropriate third

country, provided that this price is representative

+ the “constructed value” of the product, which is calculated on the basis of the cost

of production, plus selling, general, and administrative expenses, and profits. Costs shall

normally be calculated on the basis of records kept by the exporter or producer under

investigation, provided that such records are in accordance with the generally accepted

accounting principles of the exporting country and reasonably reflect the costs associated

with the production and sale of the product under consideration. Authorities shall consider

all available evidence on the proper allocation of costs, including that which is made

available by the exporter or producer.

If the like product is exported from a non-market economy (the selling price and

input price are set by the government), the above methods are not used to determine the

normal value. Under this circumstance, the Anti-dumping Agreement allows the authorities

to use the selling price or production cost of a third country to calculate the normal value of

the product under consideration.

The ordinary course of trade

There is no specific definition of what sales of the product in the ordinary course of

trade are. however, the Anti-dumping Agreement defines a specific circumstance in which

sales of the like product in the domestic market of the exporting country or sales to a third

country at prices below per unit (fixed and variable) costs of production plus


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administrative, selling and general costs may be treated as not being in the ordinary course

of trade. The like product may be disregarded in determining normal value only if the

authorities determine that such sales are made within an extended period of time (normally

one year and no less than 6 months) in substantial quantities and are at prices which do not

provide for the recovery of all costs within a reasonable period of time. If prices which are

below per unit costs at the time of sale are above weighted average per unit costs for the

period of investigation, such prices shall be considered to provide for recovery of costs

within a reasonable period of time, the sales is considered to be in the ordinary course of

trade.

Calculating the dumping margin

A fair comparison shall be made between the export price and the normal value to

define dumping margin. The comparison must obey these rules:

- This comparison shall be made at the same level of trade (for e.g.:

ex-factory/wholesale/retail price). Normally, the ex-factory price is chose to compare.

- Sales are made at as nearly as possible the same time.

- differences in conditions and terms of sale, taxation, levels of trade, quantities,

physical characteristics, and any other differences which are also demonstrated to affect

price comparability shall be considered.

Three methods are provided to make comparison:

- A comparison of a weighted average normal value with a weighted average of

prices of all comparable export transactions

- A comparison of normal value and export prices on a transaction-to-transaction

basis


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- a weighted average basis may be compared to prices of individual export

transactions if the authorities find a pattern of export prices which differ significantly

among different purchasers, regions or time periods, and if an explanation is provided as to

why the above two methods can not take these differences into account appropriately.

1.2.1.2. Anti-dumping measures

Provisional measures

Provisional measures aim at preventing injury being caused during the investigation.

They can be brought into effect in the investigation period, provided that: a) a preliminary

affirmative determination has been made of dumping and consequent injury to a domestic

industry; b) the authorities judge such measures necessary to prevent injury being caused

during the investigation; c) an investigation has been initiated, a public notice has been

given to that effect and interested parties have been given adequate opportunities to submit

information and make comments. Provisional measures may take the form of:

- A provisional duty

- A security - by cash deposit or bond - equal to the amount of the anti-dumping duty

provisionally estimated

- Withholding of appraisement provided that the normal duty and the estimated amount of

the anti-dumping duty are indicated.

Provisional measures must not be greater than the provisionally estimated margin of

dumping. Among the above measures, the Anti-dumping Agreement encourages countries

to apply the second one. In fact, almost all nations use this measure because of its simple

procedure.


Graduation thesis

Price undertakings

According to the Anti-dumping Agreement, during the procedural process, the

authorities and producers, exporters can reach an agreement in price undertakings. "Price

undertakings are commitments under which producers; exporters will revise their prices or

cease exporting dumped goods. Undertakings are voluntary arrangements among producer,

exporter, and importer".

Price undertakings shall not be sought or accepted from exporters unless the

authorities of the importing country have made a preliminary affirmative determination of

dumping and injury caused by such dumping. Price undertakings may be suggested by the

authorities of the importing country, but no exporter shall be forced to enter into such

undertakings. Normally, the authorities of importing country will accept price undertakings

offered by exporter, if the undertakings can remove the injury caused by dumped imports If

an undertaking is accepted, the investigation of dumping and injury shall be continued if

the exporter so desires or the authorities so decide. In such a case, if a negative

determination of dumping or injury is made, the undertaking shall automatically lapse.

Anti-dumping duties

If goods is found to be dumped and causing injury for domestic industry, the decision

whether or not to impose anti-dumping duty, and the decision whether the amount of the

anti-dumping duty to be imposed shall be the full margin of dumping or less are to be made

by the authorities of the importing country. The Anti-duping Agreement suggests that the

duty be less than the margin if such lesser duty would be adequate to remove the injury to

the domestic industry.

When an anti-dumping duty is imposed in respect of any product, such anti-dumping

duty shall be collected in the appropriate amounts in each case, on a non-discriminatory

basis on imports of such product from all sources found to be dumped and causing injury,

except imports from those sources from which price undertakings have been accepted.


Graduation thesis

The amount of the anti-dumping duty shall not exceed the margin of dumping, but the

duty can be less than the margin if it can remove the injury to the domestic market.

If a product is subject to anti-dumping duties in an importing country, the authorities

shall promptly carry out a review for the purpose of determining individual margins of

dumping for any exporters or producers in the exporting country who have not exported the

product to the importing country during the period of investigation, provided that these

exporters or producers can show that they are not related to any of the exporters or

producers in the exporting country who are subject to the anti-dumping duties on the

product. Such a review shall be carried out on an accelerated basis, compared to normal

duty assessment and review proceedings in the importing country. No anti-dumping duties

shall be levied on imports from producers and exporters while the review is being carried

out. The authorities may, however, remain appraisement and/or request guarantees to

ensure that if such a review results in a determination of dumping in respect of such

producers or exporters, anti-dumping duties can be levied retroactively to the date of the

initiation of the review.

Anti-dumping duty shall be terminated on a date not later than five years from its

imposition. Then interested parties shall have the right to request the authorities to examine

whether the continued imposition of the duty is necessary, whether the injury would be

likely to continue or recur if the duty were removed or varied, or both. The review shall be

carried out providing that a reasonable period of time has elapsed since the imposition of

the anti-dumping duty.

1.2.2. EU's anti-dumping law

As early as the foundation of the European Community, its regulations on dumping

and anti-dumping were formed. They are targeted at dumped imports which cause

significant injury to Community producers. If left unchallenged, dumping gives the third

country exporter an unfair competitive advantage which could be exploited with

considerable negative consequences for the Community industry. These regulations were

set up on the basis of the Treaty establishing the European Community, the Regulations


Graduation thesis

adopted pursuant to Article 235 of the Treaty applicable to goods manufactures from

agricultural products, proposals from different parties in the Council, opinions of the

European Parliament, especially the Anti-dumping Agreement of the WTO. The anti-

dumping regulations of the European Union have been amended several times to be in

accordance with international regulations and custom. Existing Community rules were

replaced by a new Anti-Dumping regulation which came into force on 1 January 1995. This

in turn was updated by Regulation 384/96, which came into force on 6 March 1996. The

regulation is then amended in 1998, 2000, and 2002.

1.2.2.1. Determination of dumping

The European Commission is responsible for investigating complaints and assessing

whether they are justified.

Principle 2, Article 1 of the EU's anti-dumping defines: 'A product is to be considered

as being dumped if its exports to the Community is less than a comparable price for the like

product, in the ordinary course of trade, as established for the exporting country'

Export price

Basically, the EU legislation prescribes two methods of calculating export price as

mentioned in the WTO's regulations. The export price shall be the price actually paid or

payable for the product when sold for export from the exporting country to the Community.

in cases where there is no export price or where it appears that the export price is unreliable

because of an association or a compensatory arrangement between the exporter and the

importer or a third party, the export price may be constructed on the basis of the price at

which the imported products are first resold to an independent buyer, or, if the products are

not resold to an independent buyer, or are not resold in the condition in which they were

imported, on any reasonable basis.


Graduation thesis

In these cases, adjustment for all costs, including duties and taxes, incurred between

importation and resale, and for profits accruing, shall be made so as to establish a reliable

export price, at the Community frontier level.

Normal value

In general, the EU's rules of this matter follow the basic requirements of the WTO,

and they are concerned in more detailed. sales of the like product intended for domestic

consumption shall normally be used to determine normal value if such sales volume

constitutes 5% or more of the sales volume of the product under consideration to the

Community, and it is sold in the ordinary course of trade. When there are no or insufficient

sales of the like product in the ordinary course of trade, the normal value is calculated on

the basis of export price of the like product to a third country or on the constructed value of

the product. A noticeable point in calculating on the basis of the constructed based on the

cost of production in the country of origin plus a reasonable amount for selling, general and

administrative costs and for profits. If related costs are not reflected in the records kept by

producers, exporters, they will be adjusted or specified on the basis of costs of other

producers, exporters in the same exporting country.

In the case of imports from non-market economy countries, normal value shall be

determined on the basis of the price or constructed value in a market economy third

country, or the price from such a third country to other countries; or where those are not

possible, it shall be on the basis of the price actually paid or payable in the Community for

the like product after being adjusted to include a reasonable profit margin.

1.2.2.2. Investigating authorities and investigation procedure

Investigating authorities

According to EU Regulations, the European Commission, Ministerial Council,

Member States and Court of law have the right to conduct the investigation to impose anti-

dumping measures.


Graduation thesis

European Commission

The EC plays the most important role in enforcing anti-dumping law of the EU. It is

responsible for receiving complaint, initiating an investigation, carrying out the

investigation, imposing the provisional anti-dumping measures, accepting price

undertakings from foreign exporters and petitioning for applying official anti-dumping

tariff. The EC can also suggest Ministerial Council to approve the amendment of anti-

dumping regulation and promulgate new law on commerce. Within the Commission, the

General Department of Trade is in charge of enforcing anti-dumping law. It includes about

100 offices specializing in investigating dumping cases and other trade compensation

measures.

Ministerial Council

The Ministerial Council has competence to approve the imposition of official anti-

dumping tariff petitioned by the Commission. It has the right to pass the promulgation or

amendment of commercial law submitted by the Commission.

Member States

Member States engage in carrying out anti-dumping law through Advisory

Committee (or the so-called "the Anti-dumping Committee"), consisting of representatives

of each member, with an officer of the Commission as chairman. The consultation of

Advisory Committee is referred to by the Commission in every law enforcement procedure.

If there is one member opposes to the Commission's decision, it will become ineffective.

Member States are responsible for collecting anti-dumping tax through their own customs

offices.

Court

Decision on imposing anti-dumping measures made by the Committee or the

Commission will be appraised by the Court. It will examine whether the decision making


Graduation thesis

process of the authorities follows the correct procedure. In fact, EU's Court has handled an

anti-dumping petition since 1998, but there is still no result, which shows the limitation of

the appraisement of EU's Court in anti-dumping mechanism.

Investigation procedure

The complaint may be submitted to the Commission by the Community industry. The

Community industry often communicates unofficially with officers of the Commission to

determine whether there is sufficient evidence to justify the initiation of an investigation.

The complainant frequently lodges a draft complaint to the Commission for reference.

The Community industry

In reality, the association represents the Community industry submitting the

application. The complaint shall be considered to have been made by or on behalf of the

Community industry if it is supported by those Community producers whose collective

output constitutes more than 50 % of the total production of the like product produced by

that portion of the Community industry expressing either support for or opposition to the

complaint. However, no investigation shall be initiated when Community producers

expressly supporting the complaint account for less than 25% of total production of the like

product produced by the Community industry. In order to determine whether the complaint

can be seen as being on behalf of the Community industry, the Commission normally send

questionnaires to all producers concerning about their production and opinions of the

complaint.

Examining the complaint

A complaint shall contain the following information:

- Identity of the complainant and a description of the volume and value of the

Community production of the like product by the complainant. Where a complaint is made

on behalf of the Community industry the complaint shall list all known Community


Graduation thesis

producers of the like product, and a description of the volume and value of Community

production of the like product accounted for by such producers.

- A description of the allegedly dumped product, the names of the country or

countries of origin, the identity of exporters or foreign producers and a list of importers.

- Proves of dumping activities.

- Information on injury caused by alleged dumped imports on the Community

industry.

After receiving the complaint, the Commission is responsible for examining the

accuracy and adequacy of the evidence provided to determine whether there is sufficient

evidence to justify the initiation of an investigation. Within 45 days of the date on which

the complaint is lodged, the Commission has to make decision and publish a notice on the

Official Journal. An investigation shall be carried out within a year, and 15 months is

maximum.

Questionnaire

As soon as announcing the initiation of an investigation, the Commission shall send

questionnaires to all interested parties including the complainant, importers, exporters and

their representative associations, consumer organizations. The time limit for exporters shall

be counted from the date of receipt of the questionnaire; they have 30 days to reply. If the

questionnaire is not answered fully and precisely, the Commission shall make decision base

on data provided by the complainant.

Information approachability

All interested parties may inspect all information which is not confidential, made

available by any party to an investigation.

Inspection


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After receiving the answers, the Commission shall appoint its officers to inspect head

offices of importers and producers in the EU, and then inspect the offices of exporters in

exporting country in order to define whether the data provided is in accordance with normal

accounting procedure. The inspection ensures the accuracy of the information in the

questionnaire.

The Advisory Committee does not have the right to make decision but it may inform the

Commission of the supporters and opposers among Member States. Through the Advisory

Committee, Member States may put political pressure on the Commission.

Preliminary decision

Preliminary decision shall be summarized in written form and sent to Member States.

The decision shall be discussed at the Advisory Committee. Provisional duties shall be

imposed in case the Commission defines that there is dumping and consequent injury to the

Community industry.

1.3. Comparison between WTO and EU anti-dumping laws

Making comparison between the export price and the normal value in the EU's law is

the same as the WTO's. It must be fair, specific, shall be made at the same level of trade

and in respect of sales made at as nearly as possible the same time and with due account

taken of other differences which affect price comparability. The EU lists in detail those

factors for which adjustment can be made: physical characteristics, import charges and

indirect taxes, discounts, rebates and quantities, level of trade, transport, insurance,

handling, loading, and ancillary costs, packing, credit, after-sales costs, commissions,

currency conversions.

After calculating dumping margin, the next step is to define whether dumped imports

have cause, or threaten to cause damage to the Community industry or material retardation

of the establishment of such an industry. Level of damage will be evaluated by indicators


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such as profits, productivity, and market share. If damage is proved, the European

Commission will apply anti-dumping measures.

Provisional measures

Judging, making decision on imposing provisional measures falls within the

competence of the European Commission, however, the European Council is able to make

another substitution decision by voting. The WTO's provisional measures have three forms,

but the EU only apply the second one. Provisional duties shall be secured by a guarantee.

The amount of the provisional anti-dumping duty should be less than the margin of

dumping if it would be adequate to remove the injury to the Community industry.

Price undertakings

Investigations may be terminated without the imposition of provisional or definitive

duties upon receipt of satisfactory voluntary undertakings from any exporter to revise or to

cease exports to the area in question at dumped prices, so that the Commission is satisfied

that the injurious effect of the dumping is eliminated.

Anti-dumping duties

If the European Commission has appropriate proves to impose definitive duties, the

Commission will present to the Advisory Committee a proposal which is then submitted to

the European Council. The Council will make final decision on imposing anti-dumping

duties by voting.

The anti-dumping duties will be imposed only when the following conditions are met:

- A finding of dumping: the export price at which the product is sold on the Community

market is shown to be lower than the price on the producer's home market;

- A material injury to Community industry: the imports have caused or threaten to cause

damage to a substantial part of the industry within the EC, such as loss of market share,


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reduced prices for producers and resulting pressure on production, sales, profits,

productivity etc.;

- The interests of the Community: the costs for the Community of taking measures must not

be disproportionate to the benefits.

Unlike the WTO's Anti-dumping Agreement, besides the interests of domestic

producers, the third condition is also concerned with the interests of consumer and

producers who use imported products as input. The EU's determination on imposing anti-

dumping duties bases on the interests of the Community that is different from the WTO's

one.

Chapter remarks

The anti-dumping regulation of the EU and the WTO has both similarities and

differences. On exporting to foreign markets, Vietnamese enterprises have to carefully

research their anti-dumping regulations. Getting familiar with complicated rules on

investigation and imposition anti-dumping measures is necessary for exporters and related

producers to avoid anti-dumping activities in foreign markets. As Vietnam is on the way to

WTO's accession, the experience on the EU market may be useful for Vietnam to adapt in

the bigger field of the WTO.


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Chapter 2

THE FOOTWEAR CASE

2.1. Overview of the Vietnam footwear industry

2.1.1. The importance of Vietnam’s footwear industry

Vietnam is one of the 10 largest footwear exporters in the world. Annually, about

90% of Vietnam's footwear products are exported to various markets, in which EU, the US

and Japan account for nearly 59% (this does not include the products exporting through the

third countries), 20% and 3% respectively.

Figure 1. Vietnam’s share in the world’s footwear market

Source: Lefaso, 2005

According to the country's General Statistics Office, Vietnamese footwear has found

market in over 40 countries. From 2004, it ranks as the fourth largest footwear exporter in


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the world after China, Chinese Hong Kong, and Italy, with an annual export value of

US$2.6 billion, increasing 15% over 2003. Up to the year 2005, the footwear industry

export volume has reached 3.039 billion USD (2.34 billion Euro)., of which sport shoes

accounted for around 67%, lady shoes 19.5%, canvas shoes 7%, and slippers and sandals

6%.

Vietnam will intensify export of footwear to traditional markets, including the United

States and the European Union (EU), in a move to reap 6.2-6.5 billion U.S. dollars from

exporting the products in 2010.

The footwear industry is considered as one of the strategic economic sector of

Vietnam. It has been developing very fast over the last decade. It is today the third largest

foreign currency earner of the country after crude oil and garments. The footwear industry

has some 300 manufactures engaged in footwear manufacturing and leather tanning,

including 35 sate-owned companies, 191 private enterprises and 134 foreign invested

companies. Private and foreign invested companies are playing an increasingly important

role. Foreign invested units have demonstrated its prevailing advantage in production

capacity, output and market as a result of huge investment with a number of efficient

projects. The share of export contributed by these non-state companies has increased from

around 73.5% in 2000 to around 83% in 2003.

The footwear industry plays an important role in Vietnam's exports, accounting for

10% of the annual total.

Table 1. Footwear exports compared to total exports in 2000-2005

Year 2000 2001 2002 2003 2004 2005

USD Euro USD Euro USD Euro USD Euro USD Euro USD Euro

Footwear

export

1,468 1.130 1,575 1,212 1,846 1,421 2,267 1,745 2,640 2,032 3,039 2,340


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National

total

export

14,448 11,124 15,100 11,627 16,700 12,859 20,600 15,862 26,503 20,407

Proportio

n (%)

10,16 10,43 11,05 11,00 10,00

Source: Lefaso, 2005 (1USD = 0.77euro)

Vietnam is estimated to earn nearly 2.1 billion dollars from exporting footwear to the

world market in the first seven months of this year, a year-on-year rise of 22.3 percent.

Table 2. Vietnam's export in July and seven moths of 2006

(Units: Thousand tones; Million USD)

6 months July 7 months 7 months on year

over 2005

Quantity Value Quantity Value Quantity Value Quantity Value

Crude oil 8240 4180 1400 740 9640 4920 94.2 122.4

Coal 13615 428 2200 70 15815 498 167.2 135.4

Garment,

textile

2762 600 3362 132.1

Footwear 1747 340 2087 122.3

Bags,

wallets...

251 50 301 108.5


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Electronic

products

770 130 900 119.8

Bamboo,

sedge

products

96 18 114 106.3

Ceramics 141 22 163 116.1

Gemstones,

metals

73 10 83 120.4

Electric

wires,

cables

311 55 366 137.7

Plastic

products

212 40 252 130.1

Bicycles,

bicycle

parts

73 6 79 81.4

Vegetable,

animal oil

8 2 10 95.1

Children

toys

26 4 30 139.8

Instant

noodles

33 5 38 89.2


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Rice 2843 771 500 135 3343 906 95.3 94.6

Coffee 507 582 60 73 567 655 87.4 129.4

Vegetables 132 20 152 111.4

Latex 290 517 55 118 345 635 141.6 213.2

Pepper 76 109 13 20 89 129 136.9 144.3

Cashew

nuts

55 219 11 45 66 246 121.7 100.4

Green tea 44 44 11 11 55 55 137.6 130.1

Peanuts 9 6 2 2 11 8 24.0 28.3

Furniture 918 160 1078 126.6

Aqua

cultural

products

1426 310 1736 125.5

Source: Ministry of Trade.

Along with its contribution to the national export figures, the industry plays a major

role in attracting labor. It has created half-a-million direct jobs and an equal number of jobs

in supporting industries, making it a significant contributor to reducing poverty. At the end

of 2004, workers in the footwear industry accounted for 6.5% of the total number of

industrial workers, who come from rural areas outside the surveyed enterprises, is

approximately 50-70%. In certain businesses it is higher than 80%. The proportion of

women workers aged 18 to 25 is approximately 70%. The high proportion of women


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workers is an advantage for the industry, as women in Vietnam are preferred to men in jobs

requiring attention to detail and skill. However, these immigrant women workers are the

most vulnerable when there is an external factor affecting their income and employment, as

they are living far from home and are easily exploited.

2.1.2. Footwear exports to the European Union

EU is a major market for Vietnamese footwear. This is a robust market of 400 million

people whose living standards are quite high and demand for shoes is big. With annual

imports of 800 pairs of footwear, this market amounts to 29,3% of the total world footwear

consumption. While in 1995 Vietnamese footwear earned only US $400m in exports, this

increased sharply to US$800 million and nearly US$1 billion in 1998 and 1999

respectively. The surge in footwear exports to the EU is attributed to the Generalized

System of Preferences that EU has granted to Vietnam under which preferential tariffs

equal only 70% of the normal tariff rates and have given the Vietnamese footwear industry

a comparative advantage over neighbor competitors who do not enjoy similar favorable

conditions. As the EC data, since 1996, Vietnam has ranked third largest in footwear

exported to the EU, after China and Indonesia. Europe's colder climate and weather

characteristics create high demand for leather footwear.

At present, Vietnam ranks second after China in terms of footwear export earnings.

The European Union is the industry's primary market, accounting for 59% of Vietnam's

total annual footwear export. Moreover, the footwear industry also generates Vietnam's

largest export to the EU. Vietnam's total export revenue to the EU was 5.51 billion in 2005,

of which 2.1 billion was from the footwear industry. This amounted to 38% of Vietnam's

total annual exports to the trade bloc. Among the EU member nations, the United Kingdom,

Germany, Belgium, France and the Netherlands are the main importers of Vietnamese

footwear.

In the coming years, the EU will likely to continue to be the dominant market for

Vietnam's footwear. Vietnam also eyes revenue of over 4.7 billion dollars for footwear


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exported to the EU in 2010, accounting for more than 7.5 percent of the block's total

footwear import turnover in the year.

2.2. Overview of the EC's anti-dumping petition

On May 30, 2005, the European Confederation of Footwear Producers (CEC), which

represents EC footwear producers with combined market share of more than 40% in upper

leather footwear, field a petition with the European Commission requesting an anti-

dumping investigation into 33 types of footwear with leather uppers from Vietnam and

China. The CEC alleged that Vietnam and China exported footwear products to the

European market at prices lower than the normal cost, causing injury to EU leather

footwear industry.

In July 7, the EC official launched the anti-dumping investigation of leather uppers

footwear importing from Vietnam and China. According to law, the EC will investigate

Vietnam and China to determine whether or not producers followed market economy

conditions in the process of production and sales. From that point, investigators will

consider production costs to decide if the products have indeed been dumped. The criteria

for market economy conditions mainly focus on the following:

- Business and financial decisions have been made without Government interference.

- Accounting vouchers are independently audited according to international accounting

standards (IAS) and are applicable for all purposes

- Business orientation is not in line with planned or subsidized economy

- Business adheres to Bankruptcy Law and Asset Law

- Currency flow must be at market rates


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During the investigation, inspectors selected Brazil as the reference country in order

to determine standard cost and price when calculating the normal cost for Vietnam and

China.

From September 22 to October 14, 2005, the EC selected eight Vietnamese

enterprises as a sample for investigation

On November 23, 2005, the EC concluded that none of the eight enterprises in the

survey met the criteria for market economy as regulated by the EC law.

Although the EC could not identify absolutely whether export prices were lower than

normal cost, enterprises in the study were denied market economy treatment based on

government participation in the form of low interest rates, regulated land prices, and tax

preference.

On February 23, 2006, EC announced the time schedule the EC imposed provisional

duties on imports footwear with leather uppers originating in Vietnam. According to that,

on April 7, 2006, the duties were 4.2%; 8.4% from June 2, 2006; 12.6% from July 17,

2006; and finally 16.8% from September, 2006. After September, 2006, EC will make a

final decision on the case.

On October 6, 2006, the EU has officially imposed an anti-dumping duty of 10% on

Vietnamese upper leather footwear.

2.3. The petitioner's arguments

Ten sampled Community producers are located in five different Member States. They

requested that their identities be kept confidential as the disclosure of their identity could

lead to a risk of significant adverse effects. Certain complainants Community producers

supply customers in the Community that also source their products from Vietnam, thus

benefiting from these imports. Those complainants are therefore in a sensitive position

since some of their clients may not be satisfied with their lodging or supporting a

complaint.


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2.3.1. Market economy treatment

The EU anti-dumping does not stipulate what constitutes a non-market economy.

Instead the regulations list 15 countries consider being non-market economies, and

presently divide them into the following three groups.

Table 3. Categories of non-market economies in EU basic regulation

1 Those which have had reforms which

have led to the emergence of firms for which

market economy conditions might prevail.

China, Vietnam, and

Kazakhstan

2 Any non-market economy country which

is a member of the WTO at the date of the

initiation of the investigation.

Albania, Armenia,

Azerbaijan, Georgia,

Kyrgyzstan, Moldova and

Mongolia.

3 Other non-market economies. Belarus, North Korea,

Tajikistan, Turkmenistan,

and Uzbekistan.

Source: Swedish National Board of Trade.

Eight Vietnamese companies have been selected to be samples for exporting

producers. The following table summarizes the determination for each company against

each of the five criteria set out by the European Commission.


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Table 4. EU investigation outcomes

Company 1 2 3 4 5 Conclusion

Business

decisions

Accounting

standard

Assets

and

'carry

over'

Legal

environment

Currency

exchange

Company 1 no no No yes yes No MET




Company 5 no yes No yes yes No MET


Company 7 yes no No yes yes No MET

Company 8 yes no No yes yes No MET

Source: Official Journal of the European Union

2.3.1.1. Business decisions

Business decisions are decisions of firms regarding prices, costs, and inputs,

including for instance raw materials, cost of technology and labor, output, sales, and

investment, made in response to market signals reflecting supply and demand, and without


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significant State interference in this regard, and costs of major inputs substantially reflect

market values.

Regarding the first criterion, six companies failed to demonstrate that their business

decisions are made in response to market signals and without significant State interference.

Four of them operate under the obligation to export either all or a significant part of their

production. The companies concerned claimed that they were allowed to sell on their

domestic market. However, their submission failed to give any relevant counter arguments.

The companies merely argued that they are free to ask for a modification of their

investment license if they want to sell on their domestic market and/or that quantitative

sales restriction have a tax purpose. In that respect, the Commission services cannot but

note that the companies are apparently free to remove this restriction from their investment

license but did not request any modification during the investigation period nor thereafter.

These companies were thus still subject to a sales ratio and were therefore not able to take

their business decisions in reaction to market signals. The claims were therefore rejected.

The two remaining companies were found to be entirely state owned with direct

management links to the state. Both of these companies challenged the fact that there was

significant State interference but did not provide additional new arguments to substantiate

their claims which were, therefore, rejected.

2.3.1.2. Accounting

Firms have on clear set of basic accounting records which are independently audited

on line with International Accounting Standards (IAS) and are applied for all purposes.

As far as the second criterion is concerned, seven companies failed to fulfill the

condition. Three companies had no audited accounts nor published financial statements.

For three other companies, it could not be guaranteed that accounting records are in line

with the IAS and applied for all purposes since the auditors specifically mentioned in the

published financial statements that the accounting statements are not interested to present

the financial position of the company in accordance with accounting principles and

practices generally accepted in countries and jurisdictions other than Vietnam. this was


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found to be in contradiction to the IAS norms which state in their 'Framework for the

preparation and presentation of financial statements' that 'the objective of financial

statement is to provide information about the financial position, performance and changes

in financial position of an entity that is useful to wide range of users in making economic

decisions'. In addition, any entity whose financial statements comply with IAS shall make

an explicit and unreserved statement of such compliance in the notes which is obviously not

the case for these companies. For two of these companies, significant problems have been

raised by the auditors in their report and for one of them, the verification performed by the

auditors was found to be highly insufficient to guarantee the reliability of the accounts. The

seven exporting producers concerned contested the conclusion. However, in view of the

absence of audited accounts for three of them, the substantial problems raised by the

auditors themselves in their report for two others, and the significant remark made by the

auditors concerning the last two companies, which clearly warns the users that their

accounts do not comply with the generally accepted accounting principles: the submission

made by these seven companies did not contain any new elements that would permit the

Commission services to revise their conclusions. The claims were rejected.

2.3.1.3. Assets and 'carry over'

The production costs and financial situation of firms are not subject to significant

distortions carried over from the former non-market economy system, in particular in

relation to depreciation of assets, other write-offs, barter trade and payment via

compensation of debts.

As far as the thirst criterion is concerned, in view of the situation regarding the land

use rights which do not correspond to market economy conditions but are still centrally

determined by the authorities, in particular regarding price setting and price revision, all

companies failed to demonstrate that there are no distortions carried over from the non-

market economy system. Moreover, for three of these companies, distortions were also

found to be carried over from non-market economy system regarding, more particularly,

the valuation of the assets. The conclusions were contested by the companies which failed

to provide new elements to substantiate their claims. The latter were rejected.


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2.3.1.4 Legal environment and currency exchange

The fourth and fifth criteria were found to be met by each of the eight companies.

2.3.2. Individual treatment

The EU basic regulation also provides for individual treatment of companies in

certain non-market economies whose decisions regarding exports are considered not to be

distorted by state intervention. In order to be granted individual treatment the applicant will

have to show that it fulfils the following criteria: in the case of wooly or partly foreign

owed firms or joint ventures, exporters are free to repatriate capital and profits; export

prices and quantities, and conditions and terms of sale are freely determined; the majority

of the shares belong to private persons. State officials appearing on the board of Directors

or holding key management positions shall either be in minority or it must be demonstrated

that the company is nonetheless sufficiently independent from state interference; exchange

rate conversions are carried out at the market rate; State interference is not such as to permit

circumvention of measures if individual exporters are given different rates of duty.

As far as Vietnam is concerned, the exporting producers who requested MET also

claimed IT in the event that they would not to be granted MET. On the basis of the

information available, it was found that these companies did not meet all the requirements

for IT. In particular, it was established that for four companies, the export sales quantities

were not freely determined by the company, but were fixed in the company's business

license. For the two 100% State-owned companies, it was considered that they failed to

demonstrate that appropriate measures were taken to prevent State interference. for the two

remaining companies, it was considered that they linked to a third company which did not

fulfill the requirements for IT as set in EU's regulation for reasons of export sales

restrictions and State involvement in its internal structure and decision-making process. As

there would be a risk of circumvention were different duty rates to be applied to these thee

related companies, IT could not be granted to the former two companies.

2.3.3. Vietnam's selling under the normal value


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According to Article 2 of the EU's anti-dumping regulation, in case of imports from

non-market economy countries and to the extent that MET could not be granted, normal

value has to be established on the basis of the price or constructed value in an analogue

country. The Commission indicated its intention to use Brazil as an appropriate analogue

country for the purpose of establishing normal value for Vietnam. The three main Brazilian

exporting producers are:

- Bison Indústria de Calcados Ltda

- Calcados Azeleia SA

- H. Bettarello Curtidora e Calcados Ltda

One of the most important criteria for the selection of the analogue country are the

representative domestic sales in the analogue country as compared to exports of the product

concerned originating in the non-market economy country or country concerned by the

proceeding. Brazil appeared to be the most reasonable choice in view of the representative

domestic sales which were found to account for 5% or more in comparison with exports

from Vietnam.

Table 5. Average unit prices of Vietnamese products on EU market

2001 2002 2003 2004 IP

Vietnam EUR/pair 12,5 11,8 10,5 9,8 9,7

Index: 2001=100 100 95 84 79 78

Source: Eurostat.

The above table shows the average prices of Vietnamese exports into the Community.

After a comparison between normal value and export price was made on an ex-factory


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basis, the European Commission came to a conclusion that Vietnamese provisional

dumping margin is 64%.

2.3.4. Injury

Within the Community, the product concerned is manufactured by more than 8000

producers. Around 80% of the Community production is concentrated in Italy, Portugal,

and Spain. In the table below are presented certain indicators provided by Italy, Spain,

Portugal, France, Poland and Greece which demonstrate that the sector has been facing

serious negative development.

Table 6. Macro indicators provided by the national federations of the

complainants

2001 2002 2003 2002 IP

Production (000 pairs) 538 910 446 917 408 559 370 143 349 222

Index 2001=100 100 83 76 69 65

Employment 238 018 226 126 215 426 201 174 194 579

Index 2001=100 100 95 91 85 82

Number of companies 10 728 10 684 10 447 10 044 9 579

Index 2001=100 100 100 97 94 89


Production of footwear with uppers of leather in the above mentioned Member States

declined by 35% during the period considered. During the same period, more than 1000

companies were forced to close down. This represented more than 43 000 job losses; a


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decrease of 20% of employment in 2001. The decline of number of companies was

especially marked during the IP, a period which significantly overlaps with the year 2005.

This indicates an acceleration of bankruptcies during the first quarter of 2005.

An injury analysis was carried out, the injury indicators have been established at two

levels: the macro-economic elements were assessed at the level of the entire Community

industry; the micro-economic elements for the individual companies.

2.3.4.1. Macro-economic indicators

The analysis of the macro-economic indicators revealed that the injury mainly

materialized in terms of decrease of sales volume and market share. Since footwear is

manufactured on order, this also had a direct negative impact on the production level and

employment in the Community.

The production volume of the overall Community industry went down from 223

million pairs in 2001 to 146,9 million pairs during the investigation period. This represents

a decrease of more than 30%.

Table 7. Production volume of the Community industry

2001 2002 2003 2004 IP

Production (000 pairs) 223 047 182 576 172 339 158 213 146 868

Index: 2001=100 100 82 77 71 66


Because production takes place on order, the sales volume of the Community

industry followed a decreasing trend similar to the production. The number of pairs sold on

the Community market dropped by more than 50 million between 2001 and the IP, i.e. by

33%


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In terms of market shares, the Community industry market shares dropped from

27,1% in 2001 to 17, 9% during the IP.

Table 8. Sales volume and market share

2001 2002 2003 2004 IP

Sales (000 pairs) 158 913 125 665 121 234 11 240 105 749

Index: 2001=100 100 79 76 70 67

Market shares 27,1% 23,7% 22,0% 19,3% 17,9%


Employment dramatically decreased during the overall period considered. More than

26 000 jobs were lost within the Community industry, representing a decrease of 31% in

the IP compared to the 2001 level.

Table 9. Employment

2001 2002 2003 2004 IP

Total employees 83 238 69 361 66 425 61 640 57 047

Index: 2001=100 100 83 80 74 69

Source: The Journal of the European Union

2.3.4.2. Micro-economic indicators

The analysis of the micro-economic elements revealed that the individual companies

in the sample have reached the lowest possible level of profit during the investigation


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period. Their level of profit during the IP was around break-even, and the cash flow follows

a dangerous declining trend.

Table 10. Sales prices

2001 2002 2003 2004 IP

EUR/pair 20,9 20,5 20,0 19,8 19,4

Index: 2001=100 100 98 96 95 93


The average unit sales price continuously declined during the period considered. The

decrease was of 7,2%. The analysis of the situation of the sampled companies revealed that,

during the IP, they were not able to further decrease their prices levels without incurring

losses.

Table 11. Cash flow, profitability and return on investments

2001 2002 2003 2004 IP

Cash flow (EUR 000) 13 497 10 991 8 147 10 754 5 706

Profit on net turnover 1,6% 2,1% 0,1% 2,3% 1,1%

Return on investments 5,7% 8,0% 0,4% 10,0% 4,8%


The cash flow was especially affected. It declined by almost 60% between 2001 and

the IP. The profitability level in relation to turnover remained relatively stable at a level of


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1,5% between 2001 and 2004, with the exception of the year 2003, but then dropped to a

break-even level during the IP. The return on investments followed the same trend.

2.4. The subject country's arguments

Eight footwear companies in Vietnam have been selected to be samples for exporting

producers in Vietnam:

- Pou Yuen Vietnam Enterprise Ltd, Yuen Yuen.

- Pou Chen Vietnam Enterprise Ltd, Yuen Yuen.

- Taekwang Vina Industrial Co. Ltd.

- Haiphong Leather Products and Footwear Company.

- Company No 32

- Dona Biti's IMEX Corp. Pte. Ltd.

- Binh Tien Imex Corp. Pte. Ltd.

- Kai Nan Joint Venture Co. Ltd.

According to Mr. Nguyen Duc Thuan, Vice President of Vietnam Leather and

Footwear Association, "60 enterprises selected by the petitioner are small and medium

enterprises; they do not have well organized operation. As a result, their ability to be given

market-economy treatment by the EU is not high. These 60 enterprises are not

representatives and do not show the size of the Vietnamese footwear industry. We have

more than 200 enterprises, among which are big ones with large scale production; however,

they are not selected as samples for Vietnamese footwear exporters.


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2.4.1. Market-economy treatment

"Vietnamese leather shoe manufacturers are functioning according to the rules of the

market economy and they are enjoying free trade and fair competition," said Foreign

Ministry spokesman Le Dung in Hanoi. "The Vietnamese government does not intervene

and does not subsidize business activities of enterprises. The comparative advantages of

Vietnam enterprises are low labor costs and modern technology imported from Europe".

According to statistics data, more than 70% among big export enterprises are joint-

stock and 100% foreign-invested ones which the Vietnamese government cannot intervene

in the business.

The SOEs reform program in accordance with World Bank guidelines had reduced a

large number of SOEs and most SOEs had to do business themselves and operate according

to commercial principles. Vietnamese government can not interfere in setting prices for

their products exported to the EU, as more than 80 percent of them are sub-contractors for

foreign firms with famous brands as Clark, Nine West, Gabor, Camel and Siebel.

Laura Atlee, lawyer on behalf of the Lefaso members, pointed out that it was

unreasonable to jump to the conclusion that the firms inspected could not comply with the

majority of the criteria concerning business operation costs. Regarding the criterion on

business operations, Laura rejected the EC argument that Vietnam exporters did not have

the 80% export rate as regulated by Vietnam's Investment Law to receive subsidy. She

interpreted the EC argument as being out of line with two decrees issued by the Vietnamese

Government on Foreign Investment in Vietnam. The first decree No.24/2000/ND-CP

stipulates that investors have the right to choose investment projects, investment partners,

place, time, market and ratio of share contribution in accordance with the investment law

and the decree itself. Another decree No.27/2003/ND-CP is to provide companies with two

levels of incentives. Accordingly, companies either exporting 80% of their products or

employing over 5000 workers may receive preferential tax treatment.


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According to Director of the Trade Ministry' Competition Administration

Department, Dinh Thi My Loan, Vietnam is a transitional economy in which attracting

investment play a vital role in economic development. Land cost reductions (one of the

EU's accusations against Vietnam), if any, are a form of export incentives. This is a

common tool in economic policies which is preferred by market economies, including the

EU. Therefore, it can not be seen as a distortion of production cost as concluded by the EU.

The Vietnamese government continued to lift price controls. Energy, water, and other

factors of production were available at rates largely determined by supply and demand. The

government fixed prices only in natural monopolies and regulated prices in other products

such as gasoline, metals, cements, and paper, and these prices were often adjusted to reflect

costs. The government had never controlled the price, allocation and output decision of

enterprises as in other communist countries.

Vietnam’s labor code confirmed the principle of free bargaining between workers and

employers at or above the minimum wage and guarantees labor mobility. Foreign invested

enterprises hired labor directly with freely bargained wages.

Concerning the criterion on accounting and auditing norms, the EC argued that such

standard applied in Vietnamese enterprises did not follow international norms. Laura

claimed that EC inspectors did not completely understand Vietnam's accounting and

auditing norms, along with the Land Law and Vietnam's Law on Foreign Investment.

Lefaso described the claim as groundless since the country's norm, in fact, complied with

those set by the International Federation of Accountants - as Vietnam is an acting member.

2.4.2. Level of ‘injury’ to EU producers

According to Department of Trade Promotion, Ministry of Trade, among 30% of

Vietnamese leather footwear producers, 70% produce and export footwear to the EU

market in the form of pre-production with low benefit. More than 95% of Vietnamese

footwear exported to the EU are bearing the name of clients such as Nike, Adidas, ... or

trademarks of retail corporations like Famous Footwear, K, Shoes... provided by foreign


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partners. This is a popular type of production cooperation between foreign clients and

Vietnam enterprises. Therefore, it is groundless to say that Vietnam is dumping as more

than 80% of Vietnam's footwear enterprises are sub-contractors for foreign firms that

manufacture products for such global names as Clark, Nine West, Gabor, Camel and

Siebel. Almost all Vietnamese shoemakers cannot impose prices for exports to the EU

market.

Some directed exporters have small scale of production and low productivity, so they

are not ably to harm or threaten to harm the footwear industry of EU.

In accordance with the assessment of the EU, the needs for footwear of the EU

market is 2.5 billion pairs, in which leather footwear accounted for 35%. The imported

amount from China is 1.25 billion pairs, accounting for 50% of the total import needs of the

EU market. Meanwhile, import quantity of Vietnam is 269 million pieces, making up 11%

of the total import needs of the EU market.

Table 12. 10 biggest footwear exporters into the EU market

2005

(1000 Euro)

2005

(pairs)

01-05/2006

(1000 Euro)

01-05/2006

(pairs)

China 4,730,143 1,259,482,144 2,323,242 668,549,155

Vietnam 2,088,569 269,839,140 881,080 113,314,301

Rumania 1,034,455 71,481,775 430,561 30,894,861

India 512,797 52,706,802 285,669 31,108,964

Indonesia 455,672 50,941,707 224,057 24,297,653

Brazil 322,941 31,192,469 178,430 18,428,481


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Tunisia 243,28 28,275,942 110,458 14,067,788

Thailand 240,598 19,769,762 103,211 8,958,652

Morocco 145,224 14,612,153 71,541 7,038,256

Hungary 128,072 11,218,189 50,895 4,776,239

Source: Statistics of the European Customs

Imports of leather shoes from China soared 450 percent from 2004 to 2005 and by

1,000 percent from 2001 to 2005. Vietnamese imports fell by 1 percent from 2004 to 2005,

mainly due to sharper competition with China, but grew 95 percent from 2001 to 2005.

Therefore, the increase of Vietnamese exports to the EU market is not significant in

comparison with China. According to many economists, Vietnamese export would do no

harm to the EU producers.

In 2005, the number of Chinese shoes under anti-dumping investigation was 206

million pieces, accounting for 16.5% of the total exported amount. While the number of

Vietnamese shoes under investigation was 119 million pieces, accounting for 45% of the

total exported amount. This number showed the huge differences in quantity exported from

Vietnam and China to the EU. In terms of quantity, Vietnam exports are 4.8 times less than

China, but investigated ratio is 2 times more than China.

In terms of price, during the period of 2001-2005, the export price of China and

Vietnam decreased 31% and 20% respectively. Although the average selling prices

declined, Vietnamese ones are still lower than the Chinese ones in terms of examining each

commodity. For instance, code 642 219, Vietnam's price is Chinese's price is which is 2.6

times lower than Vietnam's. Code 640 299, Vietnam's price is 2.82 times higher than

China's.


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Table 13. Comparison between unit prices of certain leather commodities

from China and Vietnam.

Code Pieces Euro/piece

China Vietnam China Vietnam

640 192 4,013,468 12 3,24 9,33

640 219 17,033,578 2,739,510 3,29 8,4

640 291 7,720,857 1,137,339 4,92 7,92

640 299 277,638,818 29,542,546 1,93 5,45

640 399 68,562,309 32,545,592 7,98 9,54

640 411 23,988,298 6,268,266 6,88 8,47

640 419 143,903,058 17,415,669 1,19 5,23

640 420 2,914,992 70,087 1,4 6,76

640 590 7,129,538 202,410 1,54 2,18

64041910 37,040,262 1,548,905 0,97 1,29

Source: Statistics of the European Customs


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The estimated margin of dumping of Vietnam is 130%, China is 400%. If Vietnamese

uppers leather footwear were imposed 16.8% duties, Chinese products must be imposed

40% duties.

The Federation of European Sporting Goods Industries (FESI) also concerned that the

proposed duties are considerably higher than under the previous proposal, especially in the

case of Vietnam. This runs counter to any development policy logic: Vietnam, which saw

its exports to the EU decline (Eurostat figures show a 57.4 percent jump in Chinese exports

into the 25 EU countries between 2004 and 2005. In an odd twist, Vietnam's exports

actually fell 9.9 percent) and prices rise in 2005, will be capped to a lower export level and

face substantially higher duties than China.

2.4.3. Inappropriate choice of surrogate country

The EC chose Brazil to be the reference market for Vietnamese-made shoes. Vietnam

completely opposed to this decision. Brazil does not possess similarities to Vietnam in

terms of socio-economic and culture developments, or per capita GNP, labor cost and

condition to access to raw material. The average GDP of Brazil is 3,320 USD/ per capita,

while the number of Vietnam is 500 USD/ per capita. Vietnam has a per capita income a

third of Brazil's consequently, the average manual labor cost per hour of the Brazilian

footwear industry is US$1.45 per person, much higher than that of Vietnam, which is at

US$0.35 per person, so the range of salary paid by Brazilian enterprises is much higher

than Vietnam. Moreover, salary structure in Brazil is completely different from the Asian

countries.

On the basis of the World Bank's main criteria for classifying is gross nation income

per capita, Brazil is classified in the same category as China, Thailand and Indonesia, not

Vietnam.

Vietnam has to import cow leather and does not have the same access to raw

materials as Brazil which has large and well established production of raw leather. Brazil

has one of the largest commercial bovine herds of the worlds as well as hundreds of


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companies specialized in tanning and leather finished. The Brazilian tanning industry

producers, annually, more than 30 million hides, of which is absorbed by the Brazilian

leather consuming market. Such know-how in terms of processing and availability of raw

material can only have downward effect on the Brazilian cost of production. The

investigation of the Vietnamese exporting producers showed that the quality of the leather

used by Vietnamese producers was higher than that used by Brazilian ones. It would cause

the production cost of Vietnamese products higher than the Brazilian ones. Thus, why

Vietnam has to dump their products at a lower price than Brazil?

2.4.4. Effects on interest of the Community

With EC’s high anti-dumping tariff, the price of one pair of shoes exported from

Vietnam to EU will increase by EUR 1,5-2. This will affect not only Vietnamese workers

as well as EU consumers, EU footwear retail industry, and many EU footwear investors

who are doing business in Vietnam. Other supporting industries and services of Vietnam

and EU countries will also suffer from this tariff.

Protectionism is against whom? The EU consumers. If the duties come into effect,

they have to pay higher prices and measures would result in a reduced choice of footwear.

the re-inclusion of children shoes which was first exempted to avoid forcing up prices

for poor families is a dangerous step back into protectionism and will hurt Europe's poorer

families with children most.

Northern European countries, the British and Germany strongly opposed the proposal

of anti-dumping duties application on uppers leather footwear. In their opinion, this

proposal is too strict and is a UN expected barrier to retail activities in these countries. "It is

clearly a form of protectionism," said a member of the British Conservative Party in

European Parliament.

Much of the European shoe industry has also voiced concerns and concluded that the

EU investigation was biased from the start. Some critics of the EU's anti-dumping policy,

led by the Footwear Association of Importers and Retail chains argue that the EU is


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overlooking the thousands of European jobs in the distribution network of major

manufacturers. With much of their production already based in East Asia, some of the

biggest names in the sportswear industry including Adidas, Puma, and Rebook feared such

penalties could damage a European market worth around US$48 billion a year. The

Federation of the European Sporting Goods Industry, which represents many major brands,

argued consumers face higher prices, and jobs could be lost in an industry which employs

about 650,000 people in Europe. Britain's Clarks is one of the shoe companies likely to be

hit badly by the anti-dumping actions since 60% of its products are made in Vietnam

"The investigation continues to cover many other sports shoes that are not produced

in Europe and which pose no threat to European shoe makers, only the threat to lost jobs in

the retail sector and higher prices for Europe's consumers. These measures are against the

interests of the European economy," said FESI president Horst Widmann.

Kevin Hawkins, Director General of the British Retail Consortium, said: The

Commission is caving in to the pleadings of uncompetitive European producers who are

clearly favors over low income families and retail workers. Yet this substantial and

damaging new tax will do nothing to create or reserve a single job in European shoe

production. Manufactures here do not make the low cost shoes China and Vietnam produce.

All duties will do is wipe out any profit margin made on leather shoe sales, forcing retailers

to either raise prices or cut costs by axing jobs. There is no evidence that duties increase

sales for European manufacturers. There will be no long-term winners from this latest blow

to the free trade principles the EU says it supports.

2.5. Summary

These proceedings have limited the efforts made by the two parties in the

implementation of the Market Access Agreement between the EU and Vietnam (entered on

31 March, 2005) and are contrary to the General System of Preferences accorded to

Vietnam by the EU, including the footwear industry.


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The European Commission's provisional investigation concluded that there is

compelling evidence of serious state intervention in the leather footwear sector in Vietnam

- cheap finance, tax holidays, non-market land rents, improper asset valuation. This state

intervention is leading to dumping unacceptable under WTO rules. Significant comparative

advantage in Vietnam is being topped up with uncompetitive behavior. The Competition

Administration Department at the Ministry of Trade of Vietnam, says that Vietnamese

business are operating under the principles of a market economy, with freedom to business

and fairness in competition, and are not dumping their products on the EU market. Officials

also say that the Government of Vietnam does not interfere with businesses and does not

provide them with subsidies. while Vietnam is still a transition economy, the footwear

industry is not priority for Government support, officials say, and exemption from, or

reduction in, rent (if any) should be regarded as an incentive to encourage investment but

not a distortion of production cost. The Leather and Footwear Association says that in

practice, Vietnamese companies operate in a market economy in which they are responsible

for the outcome of their business operations and for ensuring that all legal rights and

interests of their workers are met. Nearly 80% of the Vietnam footwear companies process

their own imports, neither participating in marketing and distribution, nor making any

pricing decisions on exported products, which makes it impossible for them to truly "dump"

their products.

As the EC did not grant Market Economy Treatment to Vietnam, Brazil was chosen

to be analogue country to calculate the normal value. Brazil was used because its footwear

sector, production range and export capacity is of analogous size to that of Vietnam.

However, Vietnam sides feel that Brazil is inadequate. There are major differences between

Brazil and Vietnam in terms of GDP and labor cost. Those indicators are much higher than

that of Vietnam. Moreover, the Brazilian footwear industry is under the strict state control,

limiting the number of factories and providing incentives for those in the North. In contrast,

the Vietnam footwear industry has developed freely without state interference in pricing,

scale or factory location.

The investigation also concluded that there is clear evidence of injury to EU

producers. Since 2001, closely tracking the rise on dumped imports, European footwear


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production has contracted by about 30%. Some 40000 jobs in the sector have been lost.

This is not related solely to dumped goods, but sate-intervention and dumping in Vietnam

exacerbate intense competition. The Vietnamese sides proved that Vietnam footwear

enterprises can not injure the EU producers because they are sub-contractors, do not

participate in price decision, their market share is much lower than that of China, and

products' prices are higher than China's.

The adoption of anti-dumping measures will negatively affect legitimate benefits of

450 million consumers in 25 EU countries as well preventing them from lower-priced

options in shoes selection. It will also have effect to EU Stakeholders, including but not

limited to designers, dealers, distributors, and retailers.

Final decision

On the 4th of October, 2006, the EC made their final decision on leather

footwear anti-dumping case against Vietnam. An official anti-dumping

duty of 10% has been imposed on uppers leather footwear from Vietnam

in the period of 2 years.


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Chapter 3

RECOMMENDATIONS AND LESSONS LEARNT

3.1. Conclusions and recommendations

The implementation of anti-dumping duties is a trade barrier which is more

frequently used on the international market. This kind of barrier is mainly used by

developed countries to limit exporting goods from developing countries which have

comparative advantage on labor cost and other cheap inputs. Vietnam is not an exception as

the EU has not recognized Vietnam as a market economy. Facing this challenge, Vietnam

should consider it as an indispensable and objective one on world economy integration,

between a developing, non-market economy and a developed one.

Although the EU often encourages all nations on the world to boost trade

liberalization, fair competition, demolishing trading obstacles and non-trading barriers, it is

now taking measures to apply anti-dumping duties on Vietnam. With the aim to protect

small group pf manufacturers without comparative potentials in leather shoes production,

including France, Italy and Spain, the EU has imposed tariffs threaten to bankrupt many

Vietnamese exporters at the cost of thousands of jobs.

The proposal runs counter to the EC-initiated spirit of trade liberalization and goes

against Vietnam's poverty reduction effort supported by the European Union. It affects the

smooth development in the Vietnam-EU relations, noting that some EU members have

opposed the planned anti-dumping duty.

Not only Vietnamese stakeholders see the petition as unfair, but some EU

stakeholders also se it as unreasonable. According to the European Chamber of Commerce

(Eurocham), "the proposal for the anti-dumping provision duties, at least part of that, has

been based on the inadequate information provided by the foreign partners, to whom


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Vietnam enterprise are sub-contractors". Moreover, as said by the EU parliament delegation

on its visit to Vietnam, the imposition of anti-dumping duties in footwear products

originated from Vietnam to EU could not change the weak situation of the EU producers.

Eurocham also requires the consideration for Vietnam's status as a developing

country while imposing of anti-dumping duties. Moreover, one member of the European

parliament, Mr. Frithjor Schmidt, said: "The decision of the provisional anti-dumping

duties is just based only on trade aspects, but not on other aspects, like development and

social aspects, which should not be neglected when making a deal with developing

countries"

Leafso said the leather shoes industry has lost one-third of orders from the EU as

many importers are turning to other countries such as Indonesia. Some producers have

withdrawn processing orders from Vietnam. The inflow of FDI has also been seriously

affected as FDI and private enterprises operating in the sector account for a large proportion

of overall capital while State-owned enterprises make up only 10%. There has been a

general drop in income. Revenue declined by 15-60%, or tens of billions of dong in value

(about 500,000 euro equivalent), at 76% of enterprises.

Since women make up 80% of the total labor force in this sector, most of them come

from countryside, they are likely to have less income and fall again into the vicious circle

of poverty. This would definitely increase the burden to the whole society and thus

increasing poverty in Vietnam. The anti-dumping suit has caused a sharp drop in wages, to

minimum wage only, or in some cases to "job waiting" wages of 70% minimum wage.

Unemployment and loss of income are a fear for everyone. For women and migrant

workers, it is much more than that, since they are vulnerable in the society. A large number

of workers have an average of two dependents, most of whom are elderly or children. A fall

in income and production would make life much more difficult to take care of their

families. Industrial production, particularly footwear, has helped employees from the

countryside live a more steady life. But with job losses resulting from the EC suit, all they

can do is return to their hometowns for farm work. And even that avenue is sometimes

closed, when farmland is converted to other purposes. No jobs, no income, and no chance


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to return - all of them can lead an honest employee to engage in high risk behaviors in one

way or another. It might be their way of survival. They might engage in sex work,

trafficking of women, drug use, drug trafficking, etc. They must do whatever they can do to

have income. Such risk behaviors would affect not only themselves but also society as a

whole.

Faced with the challenges discussed above, Vietnamese exporters are advised to take

the following steps:

3.1.1. Diversify the markets outside the EU

The footwear industry should shift from the EU market to others, including countries

and regions with big purchasing power, including the US, Japan, Canada, China's Hong

Kong, South Korea and Australia, and markets with high potential growth like Indonesia,

Malaysia, the Middle East, Africa, South Asia and Russia. Besides researching and

developing on potential markets, Vietnamese enterprises need to better promotion

activities, look for distribution partners.

After being sued by the EU, Vietnam footwear export turnover to the EU has

decreased, meanwhile turnover to the US has been in opposite direction. The US market

may be the importing market of Vietnam, take the place of the EU. The United States

annually imports nearly 2.124 billion pairs of shoes and sandals worth 16.19 billion dollars.

China is the country's biggest footwear supplier with a market share of 70 percent, followed

by Italy 7.7 percent, Brazil 6.7 percent, Indonesia 3 percent and Vietnam 2.9 percent.

Vietnam reaped 450 million dollars from exporting footwear to the United States in

the first nine months of this year, a year-on- year rise of 52 percent. The revenue in

September alone surged over 80 percent to roughly 55 million dollars

Key items shipped to the market are sports shoes, leather-upper shoes, and cloth-

upper shoes, adding that foreign- invested enterprises contribute most to the footwear

export revenue, since they actively promote trade due to financial strength and launch

products with well-known brands under subcontracts with overseas firms. Domestic


http://english.peopledaily.com.cn/data/indonesia.html

http://english.peopledaily.com.cn/data/brazil.html

http://english.peopledaily.com.cn/data/Italy.html

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producers have not fully exploited their potentialities. Thus, the state should assist domestic

shoes producers, especially small-and medium-sized enterprises, in accessing the US

market to ensure the sustainable development of the local footwear industry, adding that the

producers themselves should be more creative in designing models, and more active in

building their own product brands. Relevant Vietnamese agencies will intensify trade

promotion activities, expanding support to leather footwear producers and exporters, and

further studying fashion trends in overseas markets to make suitable products.

As Vietnamese producers have just accessed the US market, they still have many

opportunities to widen their markets there. Vietnam plans to earn over one billion dollars in

2010 from shipping footwear to the United States, equal to more than five percent of the

foreign country's total footwear import turnover, the Trade Information Center under the

Trade Ministry said, noting that the percentage was three percent in 2005.

In the context of anti-dumping case against Vietnam and China, Thailand, Indonesia

and some other footwear exporting countries in Asia have temporarily neglect several

markets among which is Australia market, in order to gather human and material resources

to accomplish orders from the EU. Seizing this opportunity, many Vietnam footwear export

enterprises have boosted exports to Australia.

Among all the goods, knitting–capped shoes and leather capped–shoes enjoyed major

demand in Australian markets, especially tanned leather–capped sports shoes.

Vietnam’s footwear exporting to Australia has been enjoying convenience in the

current years because exporting tax on these goods in Australia has been reduced to 12.5

percent from 17.5 percent since January 2005 and to be down to 7.5 percent since January

2007. On the other hand, Vietnam and Australia have been accelerating implementation of

agreements and commitment in opening market as well as trade liberalization.

Besides foreign markets, Vietnamese footwear enterprises also need to boost sales in

the domestic market, and intensify investment in renewing production technologies to

produce more high-grade products using no leather uppers.


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3.1.2. Diversify the product range

The EU has only pursued uppers leather footwear, enterprises can switch to materials

like resin and leatherette which are not subject to tariffs or can keep exporting other types

of footwear, for example shoes with their uppers and soles made of rubber or plastic, and

different kinds of sandals to the EU market. Besides leather footwear, Vietnam also has

many competitive products such as sport shoes, women shoes, children shoes, canvas

shoes, embroidered shoes, leatherette shoes, etc. Furthermore, domestic materials are

available for producing canvas shoes, embroidered shoes.

Vietnamese footwear enterprises should focus on producing high priced leather shoes

because: 1)low priced products are easily made and sold, however, producers would face

severe challenges from many competitors like China, India, Thailand, etc. and various

exporting countries having the same production skills. If leather shoes are also their main

exported goods, the competition in price as well as quantity is unavoidable. 2) If Vietnam

has to compete in terms of price, its products can not survive in the "war" against Chinese

low priced products. Besides, there are many footwear exporting countries produce shoes at

the equivalent price with some types of Vietnamese footwear. Therefore, if Vietnam merely

pays attention to manufacture low priced commodities, it would be at a disadvantage in

competition. Moreover, it easily becomes engaged in anti-dumping lawsuit. The petition

against Vietnamese uppers leather footwear is the consequence of producing and exporting

low priced products. As a result, it is necessary to adjust the mechanism of production

towards high priced leather footwear. That would help Vietnam avoid anti-dumping barrier,

furthermore, it could approach high-income consumers which promotes Vietnam's

prestigious and competitive ability on foreign markets.

3.1.3. Enhance model of business transfer

Vietnamese enterprises should carry out the model of business transfer. This is a

popular model in the world but it is not familiar in Vietnam. Business transfer has two

typical forms: licensing and technology transfer.


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Regarding the first form, Vietnam leather export and manufacture enterprises are

able to buy license to use trade name of a famous footwear companies like Italian or French

companies. Then these companies have to run the business independently in a certain

period of time without binding regulations from the licensers. That helps Vietnamese

enterprises avoid lawsuits, enhance reputation and improve competitiveness. This type of

business transfer is also an element which assists Vietnamese enterprises in building and

develops their trade name in the future.

Concerning the second type, in addition to using the licensers' trade names,

Vietnamese enterprises are transferred mode of conducting business as well as style of

management. This is the most effective form of business since Vietnam enterprises have to

follow regulations and strict process in running the business in conformity with criteria

being set by famous trade name owners; and have the opportunities to be known by the

European consumers. Whoever is using the trade name to do business, the relationship

between the licensees and licensers is always close in order to protect the prestigious and

trade name value. Vietnam firms will gain experiences in management, operating style

which satisfies high income consumers with strict requirements on product, and being

familiar with using well-known brand name shoes. This form helps Vietnam companies

overcome anti-dumping barrier, bolster its reputation and image on the European market.

3.1.4. Improve competitiveness

Domestic enterprises need to invest in new technology, high-class shoes production.

At first, domestic enterprises need to reduce input costs and create high added value in each

product. They have to diminish material imports rate for input by investing in domestic

production. The association among domestic firms is necessary as receiving big orders or

negotiating material prices. Then they should improve designers' skills, establish distinctive

trademark, and provide attractive and comfortable models. Further efforts should be made

by Trade promotion Center in Hanoi and Ho Chi Minh City to introduce Vietnamese

products on international market in an organized, highly competitive way. Domestic

companies cooperate with Association and Commercial Counselor in countries supplying

major materials (China, Taiwan, Korea, etc.), main importing countries (EU, US, Japan,

etc.), and potential importing markets (Australia, South Africa, etc.) to actively research


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technical barriers of these countries against footwear in an effort to find out the most

efficient selling and payment method.

It is also necessary for domestic companies to change from sub-contractors to

owners. The major requirement is to connect design and manufacture. They must have

qualified employees specializing in exploring material resources, selling products, taking

care of consumers, clearing import-export procedures, being well-informed about financial

sector, advance manufacturing process, renewing equipment. Enterprises have to perform

functions of trading companies. Instead of marketing their products to trading companies,

they introduce their commodities directly to foreign importers or large scale retailers.

Nowadays, Vietnamese exports have been increasing and they have to bear the risk of

being levied antidumping tariff. Therefore, some recommendations for Vietnam are

discussed shortly in order to solve future dumping and antidumping cases.

3.2. Lessons learnts

The footwear case has significant implications for Vietnamese exporters, whether

they are current or potential, big or small, state-owned or private, domestic or foreign-

invested, regardless of the industry they are operating in. The key lessons are:

3.2.1. Fully understanding on international trade law concerning dumping issue

The biggest difficulty Vietnam has to face now is that almost all government officials

being responsible for this issue do not have thorough knowledge of dumping and

international law dealing with dumping and anti-dumping. Vietnamese government must

have specific strategy in training official in charge so that they will be expert on law, have

experience to settle international commercial disputes in general, be proficient in anti-

dumping measures in particular.

Dumping and anti-dumping have not caught the eyes of the scientific world. Training

system on law and commerce has not had training program and lecturers specializing in

dumping and anti-dumping law. As a result, Vietnam does not have any lawyer or

consultant being well-informed in dumping. When Vietnam involves in a dumping petition,


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both the Government and its enterprises have to hire foreign law companies or foreign

consultants, which is either expensive or ineffective.

Each enterprise may have their own lawyers, or a group of enterprises hire a lawyer

to consult legal issues. There should be a co-ordination between Vietnamese lawyers and

foreign ones, as Vietnamese lawyers are not able to fully understand EU's law, and

represent Vietnamese firms to report to the EU, while foreign lawyers are not familiar with

Vietnamese enterprises' activities. Vietnamese lawyers play a significant role in anti-

dumping lawsuit against Vietnamese firms, since they prepare most arguments and

evidences in response to the Commission. Young Vietnamese lawyers are now showing

their ability, because they are good at foreign language, and have knowledge, experience in

consulting international transactions.

To break into foreign markets effectively at a low cost and risk, Vietnamese firms

should spend a certain amount of money to hire consulting companies or well-known

consultants because they are experts in local law. They should be consulted as soon as

penetrating into new markets, should not wait until being sued, they may suffer severe loss

since the petitions often last for years. Chinese enterprises are good examples. When they

broke into new markets, they were on the defensive like Vietnamese firms now. Because of

having been sued in many anti-dumping petitions, most of Chinese firms hire lawyers to

consult about legal barriers in foreign markets, including anti-dumping barrier. Moreover,

they collect information related to foreign markets to actively deal with anti-dumping

lawsuit.

Not only official in Ministry of Trade and related Association have to understand

about anti-dumping law but Vietnamese export-import enterprises have to research as well.

The Government should collect market information through its ambassadorial offices to

provide domestic firms with importing market situation, legal framework, and culture so as

to avoid or overcome trade barriers to fast approach the market. Regarding dumping suits,

Governmental offices have to assist companies with information related to the case and

good lawyers. The government can share information via Internet, or cooperate with other

Government and corporations to organize conferences, trade fairs and exhibitions.


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Human resources are becoming more and more important in joining in international

trade. However, this is our weakest point. Vietnamese enterprises should pay more

attention to personnel system, training program for staff working in export-import field to

improve their professional skill, knowledge about foreign markets, international law,

especially anti-dumping regulations. Besides, companies should have promotion policies to

attract human resource.

3.2.2. Strengthen market economy in Vietnam

There is no specific, objective criterion to differentiate between a market economy

and a non-market one. Therefore, granting market economy treatment may depend on

subjective opinions of each commercial partner or political relation. Although Vietnam has

achieved remarkable success in developing private economy, eliminate monopoly in some

key aspects, etc. However, it has not been recognized as market economy by the EU and

the USA which cause Vietnam at a disadvantage in anti-dumping case. In order to win

dumping disputes made by other countries, Vietnam should strengthen its economy to be

classified as a “market economy” as this is the first step to win dumping suits.

The extent of government ownership or control of the means of production

- Speed up the privatization process.

- Continue to strengthen land-use rights, and to simplify and reduce regulatory controls

The extent to which joint ventures or other investments by firms of other foreign

countries are permitted in the foreign country.

- Remove all dual pricing relating to foreign-invested enterprises (FIEs) including land

rental fees.

- Make government policies the same for both domestic enterprises and FIEs.

The extent of Government control over the allocation of resources and over the

price and output decisions of enterprises


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- Remove all price controls on industrial goods (e.g. cement, steel, iron)

- Introduce Competition Law

- Continue to encourage competition between state-owned commercial banks and other

financial intermediaries in Vietnam

- Continue to “level the playing field” between private and state enterprises, particularly

concerning finance and land-use rights.

Establish a transparent, coherent accounting system in line with international

standards.

3.2.3. Domestic enterprises must be well-prepared

Domestic firms have to prepare documents and records related to accounting and

auditing process. These documents and records must be transparent so that they can be

persuasive proof against the implication of anti-dumping duties. Normally, the EU's final

decision has to base on investigation to verify production situation and consumption. The

whole input and output cost of the enterprise will be reflected on the accounts and will be

certified by auditing company. If these costs are equivalent to other countries in the area

having the same level of development and they are clear, transparent, the EC investigators

will have difficulty in finding good reasons for determining dumping actions.

Enterprises must be ready and active, cooperative on being involved in anti-dumping

cases. This is a chance for them to collect information and proof the reasonability of their

export price. Once they do not take part in, they will lose their right to complain and

protest. Investigating authorities will make their own decisions and impose anti-dumping

measures which benefit for them. On the other hand, when foreign firms win the case, they

will not hesitate to sue other commodities, therefore, Vietnam will have difficulties in

exporting its products. As a result, Vietnamese enterprises should try their best to win the

case or being imposed anti-dumping tariff at the lowest rate.

Besides fully cooperating with investigating authorities, enterprises should hire

professional, prestigious lawyers that cost a lot of money. Firms should save a certain


Graduation thesis

amount of money to prepare in advance for legal disputes. Being well-prepared will helps

firms actively deal with petition without interfering in business activities.

3.2.4. Create good public relation

That is the relations with Associations, consumers, environment activists, Labor

Unions in the importing markets. In international trade, public relation is widely used in an

effort to create waves of opposition from consumers, related associations that can change

the decisions of the EU. It is important to establish a good relationship, win the confidence

of public, for example, environment protection, labor law conformation.

Making connection between consumers and importers in importing countries will be

an advantage for exporters. Anti-dumping petition is a contradiction between foreign

exporters or domestic importers with domestic producers, but in spite of the result,

consumers are at a loss. Anti-dumping tariff is an indirect one which will be paid by end

users.

The imposition of anti-dumping tariff will affect the interest of consumers and

importers in the importing countries. Vietnamese exporters should take advantage to put

pressure on investigating authorities. In developed countries like the US or the EU,

consumers often establish consumer organizations to protect their interest. These

organizations have great influence, so Vietnamese enterprises should establish good

relationship with them. This activity is very popular in developed countries. Vietnamese

firms can create this relationship by assign representatives to investigate importing markets,

or set up representative offices, and maintain the relation with consumer organizations as

well as importers.

In conclusion, Vietnam has just integrated into international trade, dumping and anti-

dumping are still new issue to domestic enterprises. Once they are become engaged in an

anti-dumping case, they realize its effect and learn some lessons to avoid lawsuits or to

solve the problems effectively. Vietnamese companies have to equip themselves with basic

knowledge on dumping and anti-dumping, as well as unite with one another to set a

common price to avoid anti-dumping duties. Enterprises have to be ready to deal with anti-


Graduation thesis

dumping petitions. When being involved in a case, Vietnam firms should associate with the

importers and consumers in the importing countries, other enterprises in and outdoor to

protect their rights, actively cooperate with investigation authorities.


Graduation thesis

CONCLUSION

Globalization is naturally the integration of developing economies into the world

economy; they have to compete sharply with developed nations. This is an unfair

competition in which big countries are calling for "trade liberalization", but they still abuse

unfair trade barriers to protect their domestic markets against developing countries. Among

those "tricks" is an anti-dumping measure, an effective tool which is widely used today.

As the country is deepening its integration into the global economy, Vietnamese

export enterprises have to carefully research many issues in order to survive and compete,

to maintain, and to strengthen as well as bolstering their positions in the world of business.

After being involved in around 23 anti-dumping petitions, they are now becoming

increasingly aware of the dumping issue. However, dumping is very complicated, so

Vietnamese companies should study the Anti-dumping Agreement, the basic anti-dumping

law of the world set by the WTO. On exporting goods into a market, they should research

the anti-dumping law of that market as each nation has their own regulations.

This thesis focuses on the EU market, a vast and potential market for Vietnam, and

the recent EU's anti-dumping petition against Vietnamese leather upper shoes footwear

products. The thesis aims at providing basic knowledge about the WTO's and the EU's anti-

duping law. It also draws out lessons from the footwear case and makes recommendations

in the hope that Vietnamese enterprises can make use of them to protect themselves against

unfair competition in the world market.


Graduation thesis

BIBLIOGRAPHY

1. Commission Regulation (EC) No 553/2006, Official Journal of the European Union.

2. Half of a million Vietnamese footwear jobs at risk: Where is the balance between trade

and development?, May 2006, ActionAid Vietnam and Vientam Leather and Footwear

Association.

3. Vietnam leather and footwear industry - Tradition and Modernity, Hanoi National

Politics

4. Vietnamese leather footwear are not dumping, Hong Phuc, Page 20, Vietnam Trade and

Market.

5. EU anti-dumping tariff and some solutions for Vietnam, PH.D Nguyen Anh Tuan,

No.10/2006, Industry Magazine.

6. www.euractiv.com

7. www.cecshoe.be

8.www.tdctrade.com

9. www. atimes.com

10. www.europa.eu.int

11. www.thanhnien.com.vn

12. www.vnexpress.net
