EU anti - Dumping lawsuit against VietNam - What can be learnt from the fooTrung ươngear case? Eng

lating 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. 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. 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 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. 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. 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. 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 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 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 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 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 - 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. 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. 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 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. 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. 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 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 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 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 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, 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. 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 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 National total export 14,448 11,124 15,100 11,627 16,700 12,859 20,600 15,862 26,503 20,407 Proportion (%) 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 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 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 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 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 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. 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. 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 2 no no No yes yes No MET Company 3 no no No yes yes No MET Company 4 no no No yes yes No MET Company 5 no yes No yes yes No MET Company 6 no no 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 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 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. 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 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 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 Source: Official Journal of the European Union 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 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._.