Reference no: EM131284030
Europe is famous as a source for fine leather goods such as handbags and shoes. Each year, consumers in Europe buy 2.5 billion pairs of shoes. Shoes from China currently account for about onethird of the market; since 2001, when China joined the WTO, Chinese imports have increased tenfold. Imports from Vietnam have doubled in the same period. The flood of shoe imports from China and Vietnam has been a boon for European retailers and value-conscious consumers. However, faced with a threat to their business, manufacturers in Italy, Spain, and France sought protection. In an effort to curb the tide of imports, the European Commission imposed tariffs for a period of 2 years: 16.5 percent on shoes from China and 10 percent on shoes from Vietnam.
Overall, the tariffs will affect 11 percent of the shoes sold in Europe. The vote by representatives of the EU member nations was close: 13 to 12. The narrow margin of victory for the tariffs reflects divergent views in Europe about how to deal with low-cost Asian goods. Countries that advocate free trade, including the United Kingdom, Ireland, and Sweden, oppose the tariffs. A trade group, the European Branded Footwear Coalition, also objected, noting that the tariffs would increase the price of a pair of women's boots by €6.50-more than $8. Officially, the EU tariffs on Chinese and Vietnamese shoe imports are known as antidumping duties.
In general, such tariffs reflect a finding that products are being sold in export markets for less than the selling price in the exporter's home country. In other words, as explained in the chapter, they are being "dumped." In economic terms, China and Vietnam-both ruled by Communist governments-are considered "nonmarket economies." From the EU's point of view, this means that the two countries' domestic prices are artificial. In such countries, where many enterprises are state-owned, profitability in the Western sense is less of a priority than job creation.
To prove dumping, investigators have only to compare the cost of the imported shoes with the prices of shoes produced in true market economies where the laws of supply and demand determine costs and prices. In such a comparison, the Chinese and Vietnamese appear to have a significant price advantage. The Financial Times noted that the tariffs reflect a triumph of the interests of a small number of EU producers at the expense of the region's 450 million consumers.
As an editorial in the Financial Times observed, antidumping duties are usually used in large-scale, capitalintensive industries such as steel. The editorial noted that, "Shoemaking is not a strategic industry with gigantic economies of scale and barriers to entry where predatory export pricing could deliver an exploitable competitive advantage. [Shoemaking] is an open global market where fierce competition will soon erode large profit margins." The editors continued, "If subsidized shoes are indeed being shipped halfway around the world to be sold off cheaply, more fool their producers. If Beijing and Hanoi want to subsidize European consumers to build their shoe collections, let them." Shoes are not the only European industry sector protected by antidumping duties.
In 2005, prompted by a complaint by the European Bicycle Manufacturers Association, the European Commission raised tariffs on Chinese bicycles from 30.6 to 48.5 percent and imposed a 34.5 percent tariff on bicycles from Vietnam. Some observers believe it was unfair to combine Vietnamese and Chinese bike imports in the same trade suit. They attempted to draw a distinction between the two nations by noting that Chinese bicycles are sold in supermarkets and department stores.
By contrast, Vietnamese consumers buy bikes in small shops. According to this line of argument, bicycles from the two countries don't compete with each other in export markets and should therefore not be investigated in the same antidumping suit. However, the European Commission concluded that Vietnam and China produce the same type of bicycles and distribute them through similar channels. As the deadline for extending the shoe tariffs approached, opposing sides appeared headed for a showdown. The tariffs had, indeed, resulted in lower import levels from China and Vietnam in 2009. However, shoe imports from Indonesia, Thailand, and other emerging markets have surged. Danish shoe manufacturer Ecco is among the coalition of companies that oppose the tariffs. Ecco is a true transnational: it sources its various shoe styles in China, Indonesia, Thailand, Slovakia, and elsewhere. Ecco also markets its shoes globally, including in Asia.
As a company vice president noted, "Tariff obstacles in Europe increase the chances that China will close its markets." Meanwhile, shoe exports from Italy continue to decline. Not surprisingly, many Italian shoemakers support the duties on the grounds that they give domestic producers a chance to rebuild their industry. As the head of the Italian shoemakers' lobby explained, "There's this stereotype of an old man in Tuscany sitting on a park bench sipping wine. That's only part of the picture. A lot of our small businesses are now investing in new technologies."
Discussion Questions
1. When tariffs are imposed on European imports of shoes from China and Vietnam, who stands to gain? Who stands to lose?
2. European policymakers object to the fact that some Asian shoe production is government subsidized. But, as an editorial in the Financial Times noted, "If Beijing and Hanoi want to subsidize European consumers to build their shoe collections, let them." Do you agree?
3. Antidumping duties can be described as a form of protectionism. As the global economic crisis deepened in 2008 and 2009, many countries began implementing protectionist policies. Is this a positive trend, or are such policies likely to prolong the recession?