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

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

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 atthe English Faculty, for giving me the opportunity to study in such an academicallystimulating program in Bachelor of Business English The course has provided me withcomprehensive 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-longlearning

My sincere thanks are due to the World Bank Library and National Library, thelibrarians, staff and the administrative office of the Hanoi Foreign Trade University forproviding me the valuable materials and assistance

I am deeply indebted to my close friends, my relatives and my boyfriend who havealways supported and encouraged me to finish the thesis

Last but of course not least, I would like to share this moment of happiness andsense of achievement with my parents and my brother, who have always stood by my sideand rendered me enormous support and unfaltering love during the whole process of mystudy

INTRODUCTION 4

Background to the study 4

Objective of the study 4

Research questions 5

Structure of the thesis 5

Scope of the study 5

Research methodology 5

Chapter 1 7

LITERATURE REVIEW 7

1.1 Dumping in international trade 7

1.1.1 Definition 7

1.1.2 Impacts on importing countries and international trade 8

1.1.2.1 Impacts on importing countries 8

1.1.2.2 Impacts on international trade 8

1.2 Anti-dumping law 9

1.2.1 WTO's anti-dumping law 9

1.2.1.1 Determination of dumping 10

1.2.1.2 Anti-dumping measures 14

1.2.2 EU's anti-dumping law 16

1.2.2.1 Determination of dumping 17

1.3 Comparison between WTO and EU anti-dumping laws 22

Chapter 2 25

THE FOOTWEAR CASE 25

2.1 Overview of the Vietnam footwear industry 25

2.1.1 The importance of Vietnam’s footwear industry 25

2.1.2 Footwear exports to the European Union 30

2.2 Overview of the EC's anti-dumping petition 31

2.3 The petitioner's arguments 32

2.3.1 Market economy treatment 33

2.3.1.1 Business decisions 34

2.3.1.2 Accounting 35

2.3.1.3 Assets and 'carry over' 36

2.3.1.4 Legal environment and currency exchange 37

2.3.2 Individual treatment 37

2.3.3 Vietnam's selling under the normal value 37

2.3.4 Injury 39

2.3.4.1 Macro-economic indicators 40

2.3.4.2 Micro-economic indicators 41

2.4 The subject country's arguments 43

2.4.1 Market-economy treatment 44

2.4.2 Level of ‘injury’ to EU producers 45

2.4.3 Inappropriate choice of surrogate country 49

2.4.4 Effects on interest of the Community 50

2.5 Summary 51

Chapter 3 54

RECOMMENDATIONS AND LESSONS LEARNT 54

3.1 Conclusions and recommendations 54

3.1.1 Diversify the markets outside the EU 56

3.1.2 Diversify the product range 58

3.1.3 Enhance model of business transfer 58

3.1.4 Improve competitiveness 59

3.2 Lessons learnts 60

3.2.1 Fully understanding on international trade law concerning dumping issue 60

3.2.2 Strengthen market economy in Vietnam 62

3.2.3 Domestic enterprises must be well-prepared 63

3.2.4 Create good public relation 64

CONCLUSION 66

BIBLIOGRAPHY 67

INTRODUCTIONBackground to the study

In recent years, a great number of bilateral and multilateral trade agreements havebeen signed between Vietnam and other countries and international organizations, which,among other things, have provided greater access for Vietnamese goods to the globalmarket However, several kinds of Vietnam exports have been accused of being sold atdumped prices in some foreign markets In particular, anti-dumping tariff was imposed onVietnam by the European Union on glutamate in 1998, by Poland on gas lighter in 2000, byCanada 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 officiallylodged 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, aswell 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 differentregulations and trading practice that requires deep understanding to defend oneself fromimplicit 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 isstill necessary for Vietnamese enterprises to deepen their understanding by further analysis ifthey 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 concernedgovernment agencies with a structured approach to anti-dumping lawsuits by contributing acloser look at anti-dumping regulations and experience from the footwear case With thisstudy, Vietnamese exporters will hopefully be able to gain the essential ‘weapon’ to defendthemselves when there is a complaint filed against them, and more importantly, to avoidbeing 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 followingsub-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 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 Itbegins with an overview of the footwear industry in Vietnam, and then provides a detaileddescription and analysis of the footwear dispute procedure, the arguments used by twosides: the EU and VN Finally, the last chapter will conclude the paper with somerecommendations for settling other dumping disputes in the future; for avoiding anti-dumping lawsuit; and avoiding negative consequences from the case

anti-Scope of the study

Dumping and anti-dumping lawsuits are a very broad topic However, this studyonly 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 exportenterprises need to familiarize with if they are to survive and succeed in the internationalmarket

Research methodology

The report draws heavily on desk research, with data and information obtained fromthe Official Journals of the European Union, Action Aids Vietnam, the Vietnam Leatherand Footwear Association, official and unofficial reports, various comments and figuresfrom published studies by experts in the field, newspapers, magazines, and the Internet.This is supplemented by primary information and experience gathered in the fieldverification exercise by the EU investigators to the footwear enterprises in Vietnam in thesummer 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 thegeneral agreement in tariffs and trade 1994, "a product is to be considered as beingdumped, 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 thecomparable price, in the ordinary course of trade, for the like product when destined forconsumption in the exporting country" A question is raised: what are the reasons ofdumping activities in international trade?

In today’s global game of intense competition, dumping helps enterprises easily breakinto and then dominate other markets However, there are differences between the aim ofbig companies and small ones, developed countries and developing ones In respect ofsmall companies and developing countries, their products are less competitive and theyhave to dump in an effort to sell their goods With regard to big firms and developednations, they sell at a low price on importing markets to gain market share, furthermore, tokick out competitors, and gradually dominate the importing markets Once breaking intoimporting markets, exporters are able to completely control them by low a price that is thetarget of dumping activities Secondly, in case countries are shortage of foreign currencies,they may foster export by lowering goods' prices However, dumping may happen beyondthe control of producers, exporters in some cases, for instance: bottle-neck, supply exceedsdemand, damageable inventory, etc.; they have to sell goods at lower prices to recover theircapital

In short, there are many purposes to dump, but whatever purposes they have,dumping still causes bad effects on importing countries, others nations, and internationaltrade.

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 internationaltrade Eliminating fair competition to break into markets, dumping has turned into anobstacle against the trend of trade liberalization In the short term, consumers gain benefitfrom dumping because of cheap price However, this is an unfair competition activity; itcan seriously damage domestic production of importing countries in the long term As aresult, nations around the world try to fight against dumping in an attempt to prevent orminimize dumped goods on their markets in case the imports of that type of goods havecaused 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 Asselling price is lower than equilibrium price on the market, in accordance with the law ofsupply and demand, there will be a new equilibrium point, and an increase in quantitydemanded that will be met by exporters Therefore, an increase in quantity demanded willlead to an increase in quantity supplied, that means international trade will develop

In the long term, when dumping enterprises control markets, and then raise sellingprices, quantity demanded will decrease gradually, and so does trading volume Otherwise,domestic enterprises better their competitive ability; vie with foreign exporters for marketshare If government of import country imposes anti-dumping tariff, import goods will nolonger be attractive for low price, so import quantity will reduce

Dumping always bring benefit for consumers as lower price, wide selection of cheapand 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 societystill benefits On making decision of whether to levy anti-dumping tariff or not, manynations consider this element

Dumping and anti-dumping measures are controversial and complicated issues thatresult in strained international trade relations, hinder WTO's target in establishing atransparent, equal international business environment

1.2 Anti-dumping law

As analyzed above, if the export price of a product exported from one country toanother is less than a comparable price, in the ordinary course of trade, for the like productwhen destined for consumption in the exporting country Therefore, by imposing anti-dumping measures against foreign exporters, importing countries want to prevent exportersfrom selling goods at price below its normal value The main purpose of the imposition ofanti-dumping measures is to protect the domestic economy and home production fromunfair competition, furthermore, to create fair competition environment, a vital factor fortrade liberalization Consequently, anti-dumping measures are said to be necessary, as theyset up the legal framework in which all players enjoy fair competition Contrary to theabove purposes, domestic firms can strategically use this measure to target only foreignfirms they view as competitive rivals, some nations abuse anti-dumping measures to protectdomestic production which lead to commercial dispute As a result, it is necessary to studydumping 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-dumpingAgreement

The Anti-dumping Agreement includes:

- Regulations on content: detailed provisions about methods and criteria fordetermination of dumping, injury, causal link between the dumped imports and the allegedinjury

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

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

- Regulations on competence of Committee on Anti-dumping Practices

independent buyer, or not resold in the condition as imported, on such reasonable basis asthe 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 isreliable (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 inanother one, barter contract) Accordingly, there will be no transaction price to defineexport price Or price quoted in the contract is unreliable because of association or acompensatory arrangement between the exporter and the importer or a third party In thesecases, 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 productunder consideration, or in the absence of such a product, another product which, althoughnot alike in all respects, has characteristics closely resembling those of the product underconsideration The Agreement provides three methods to calculate a product’s “normalvalue”

- The first is the main one which is based on the price in the exporter’s domesticmarket In case of dependent relations between producer and distributor in the exportingcountry (so producer can offer cheaper price to distributor), the authorities of the importingcountry may take selling price offered by distributor to the first independent importer to bethe normal price

- The other two methods are alternatives they are used when there is no domesticprice 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 theexporting country; b) product is sold in the domestic market in special condition; c) thevolume of the sales in the domestic market of the exporting country is low (less than 5% incomparison with the quantity of the like product sold in the importing market), however, incase it is proved that the quantity of the sold product in domestic market is enough tocompare with the export price reasonably, the investigating can use the selling price of thelike product to define the normal value The two alternatives are:

+ A comparable price of the like product when exported to an appropriate thirdcountry, 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 shallnormally be calculated on the basis of records kept by the exporter or producer underinvestigation, provided that such records are in accordance with the generally acceptedaccounting principles of the exporting country and reasonably reflect the costs associatedwith the production and sale of the product under consideration Authorities shall considerall available evidence on the proper allocation of costs, including that which is madeavailable by the exporter or producer

If the like product is exported from a non-market economy (the selling price andinput price are set by the government), the above methods are not used to determine thenormal 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 ofthe product under consideration

The ordinary course of trade

There is no specific definition of what sales of the product in the ordinary course oftrade are however, the Anti-dumping Agreement defines a specific circumstance in whichsales of the like product in the domestic market of the exporting country or sales to a thirdcountry 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 theauthorities determine that such sales are made within an extended period of time (normallyone year and no less than 6 months) in substantial quantities and are at prices which do notprovide for the recovery of all costs within a reasonable period of time If prices which arebelow per unit costs at the time of sale are above weighted average per unit costs for theperiod of investigation, such prices shall be considered to provide for recovery of costswithin a reasonable period of time, the sales is considered to be in the ordinary course oftrade

Calculating the dumping margin

A fair comparison shall be made between the export price and the normal value todefine 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 affectprice comparability shall be considered

Three methods are provided to make comparison:

- A comparison of a weighted average normal value with a weighted average ofprices of all comparable export transactions

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

- a weighted average basis may be compared to prices of individual exporttransactions if the authorities find a pattern of export prices which differ significantlyamong different purchasers, regions or time periods, and if an explanation is provided as towhy 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 preliminaryaffirmative determination has been made of dumping and consequent injury to a domesticindustry; b) the authorities judge such measures necessary to prevent injury being causedduring the investigation; c) an investigation has been initiated, a public notice has beengiven to that effect and interested parties have been given adequate opportunities to submitinformation and make comments Provisional measures may take the form of:

Price undertakings

According to the Anti-dumping Agreement, during the procedural process, theauthorities and producers, exporters can reach an agreement in price undertakings "Priceundertakings are commitments under which producers; exporters will revise their prices orcease exporting dumped goods Undertakings are voluntary arrangements among producer,exporter, and importer"

Price undertakings shall not be sought or accepted from exporters unless theauthorities of the importing country have made a preliminary affirmative determination ofdumping and injury caused by such dumping Price undertakings may be suggested by theauthorities of the importing country, but no exporter shall be forced to enter into suchundertakings Normally, the authorities of importing country will accept price undertakingsoffered 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 ifthe exporter so desires or the authorities so decide In such a case, if a negativedetermination 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 decisionwhether or not to impose anti-dumping duty, and the decision whether the amount of theanti-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 theduty be less than the margin if such lesser duty would be adequate to remove the injury tothe domestic industry

When an anti-dumping duty is imposed in respect of any product, such anti-dumpingduty shall be collected in the appropriate amounts in each case, on a non-discriminatorybasis 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 theduty 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 authoritiesshall promptly carry out a review for the purpose of determining individual margins ofdumping for any exporters or producers in the exporting country who have not exported theproduct to the importing country during the period of investigation, provided that theseexporters or producers can show that they are not related to any of the exporters orproducers in the exporting country who are subject to the anti-dumping duties on theproduct Such a review shall be carried out on an accelerated basis, compared to normalduty assessment and review proceedings in the importing country No anti-dumping dutiesshall be levied on imports from producers and exporters while the review is being carriedout The authorities may, however, remain appraisement and/or request guarantees toensure that if such a review results in a determination of dumping in respect of suchproducers or exporters, anti-dumping duties can be levied retroactively to the date of theinitiation of the review

Anti-dumping duty shall be terminated on a date not later than five years from itsimposition Then interested parties shall have the right to request the authorities to examinewhether the continued imposition of the duty is necessary, whether the injury would belikely to continue or recur if the duty were removed or varied, or both The review shall becarried out providing that a reasonable period of time has elapsed since the imposition ofthe anti-dumping duty

1.2.2 EU's anti-dumping law

As early as the foundation of the European Community, its regulations on dumpingand anti-dumping were formed They are targeted at dumped imports which causesignificant injury to Community producers If left unchallenged, dumping gives the thirdcountry exporter an unfair competitive advantage which could be exploited withconsiderable negative consequences for the Community industry These regulations wereset 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 fromagricultural products, proposals from different parties in the Council, opinions of theEuropean Parliament, especially the Anti-dumping Agreement of the WTO The anti-dumping regulations of the European Union have been amended several times to be inaccordance with international regulations and custom Existing Community rules werereplaced 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 Theregulation is then amended in 1998, 2000, and 2002

1.2.2.1 Determination of dumping

The European Commission is responsible for investigating complaints and assessingwhether 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 likeproduct, 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 asmentioned in the WTO's regulations The export price shall be the price actually paid orpayable 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 unreliablebecause of an association or a compensatory arrangement between the exporter and theimporter or a third party, the export price may be constructed on the basis of the price atwhich the imported products are first resold to an independent buyer, or, if the products arenot resold to an independent buyer, or are not resold in the condition in which they wereimported, on any reasonable basis

In these cases, adjustment for all costs, including duties and taxes, incurred betweenimportation and resale, and for profits accruing, shall be made so as to establish a reliableexport 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 domesticconsumption shall normally be used to determine normal value if such sales volumeconstitutes 5% or more of the sales volume of the product under consideration to theCommunity, and it is sold in the ordinary course of trade When there are no or insufficientsales of the like product in the ordinary course of trade, the normal value is calculated onthe basis of export price of the like product to a third country or on the constructed value ofthe product A noticeable point in calculating on the basis of the constructed based on thecost of production in the country of origin plus a reasonable amount for selling, general andadministrative costs and for profits If related costs are not reflected in the records kept byproducers, exporters, they will be adjusted or specified on the basis of costs of otherproducers, exporters in the same exporting country

In the case of imports from non-market economy countries, normal value shall bedetermined on the basis of the price or constructed value in a market economy thirdcountry, or the price from such a third country to other countries; or where those are notpossible, it shall be on the basis of the price actually paid or payable in the Community forthe 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 isresponsible for receiving complaint, initiating an investigation, carrying out theinvestigation, imposing the provisional anti-dumping measures, accepting priceundertakings from foreign exporters and petitioning for applying official anti-dumpingtariff The EC can also suggest Ministerial Council to approve the amendment of anti-dumping regulation and promulgate new law on commerce Within the Commission, theGeneral Department of Trade is in charge of enforcing anti-dumping law It includes about

100 offices specializing in investigating dumping cases and other trade compensationmeasures

 Ministerial Council

The Ministerial Council has competence to approve the imposition of official dumping tariff petitioned by the Commission It has the right to pass the promulgation oramendment of commercial law submitted by the Commission

 Court

Decision on imposing anti-dumping measures made by the Committee or theCommission 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 ananti-dumping petition since 1998, but there is still no result, which shows the limitation ofthe appraisement of EU's Court in anti-dumping mechanism.

Investigation procedure

 The complaint may be submitted to the Commission by the Community industry TheCommunity industry often communicates unofficially with officers of the Commission todetermine 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 theapplication The complaint shall be considered to have been made by or on behalf of theCommunity industry if it is supported by those Community producers whose collectiveoutput constitutes more than 50 % of the total production of the like product produced bythat portion of the Community industry expressing either support for or opposition to thecomplaint However, no investigation shall be initiated when Community producersexpressly supporting the complaint account for less than 25% of total production of the likeproduct produced by the Community industry In order to determine whether the complaintcan be seen as being on behalf of the Community industry, the Commission normally sendquestionnaires to all producers concerning about their production and opinions of thecomplaint

 Examining the complaint

A complaint shall contain the following information:

- Identity of the complainant and a description of the volume and value of theCommunity 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 Communityproduction of the like product accounted for by such producers.

- A description of the allegedly dumped product, the names of the country orcountries 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 Communityindustry

After receiving the complaint, the Commission is responsible for examining theaccuracy and adequacy of the evidence provided to determine whether there is sufficientevidence to justify the initiation of an investigation Within 45 days of the date on whichthe complaint is lodged, the Commission has to make decision and publish a notice on theOfficial Journal An investigation shall be carried out within a year, and 15 months ismaximum

 Questionnaire

As soon as announcing the initiation of an investigation, the Commission shall sendquestionnaires to all interested parties including the complainant, importers, exporters andtheir 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 thequestionnaire 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, madeavailable by any party to an investigation

 Inspection

After receiving the answers, the Commission shall appoint its officers to inspect headoffices of importers and producers in the EU, and then inspect the offices of exporters inexporting country in order to define whether the data provided is in accordance with normalaccounting procedure The inspection ensures the accuracy of the information in thequestionnaire.

 The Advisory Committee does not have the right to make decision but it may inform theCommission of the supporters and opposers among Member States Through the AdvisoryCommittee, 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 beimposed in case the Commission defines that there is dumping and consequent injury to theCommunity 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 isthe same as the WTO's It must be fair, specific, shall be made at the same level of tradeand in respect of sales made at as nearly as possible the same time and with due accounttaken of other differences which affect price comparability The EU lists in detail thosefactors for which adjustment can be made: physical characteristics, import charges andindirect 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 importshave 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 EuropeanCommission will apply anti-dumping measures.

Provisional measures

Judging, making decision on imposing provisional measures falls within thecompetence of the European Commission, however, the European Council is able to makeanother 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 ofdumping 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 definitiveduties upon receipt of satisfactory voluntary undertakings from any exporter to revise or tocease exports to the area in question at dumped prices, so that the Commission is satisfiedthat the injurious effect of the dumping is eliminated

Anti-dumping duties

If the European Commission has appropriate proves to impose definitive duties, theCommission will present to the Advisory Committee a proposal which is then submitted tothe European Council The Council will make final decision on imposing anti-dumpingduties 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 Communitymarket 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 causedamage 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 domesticproducers, the third condition is also concerned with the interests of consumer andproducers 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'sone

Chapter remarks

The anti-dumping regulation of the EU and the WTO has both similarities anddifferences On exporting to foreign markets, Vietnamese enterprises have to carefullyresearch their anti-dumping regulations Getting familiar with complicated rules oninvestigation and imposition anti-dumping measures is necessary for exporters and relatedproducers to avoid anti-dumping activities in foreign markets As Vietnam is on the way toWTO's accession, the experience on the EU market may be useful for Vietnam to adapt inthe 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, about90% of Vietnam's footwear products are exported to various markets, in which EU, the USand Japan account for nearly 59% (this does not include the products exporting through thethird countries), 20% and 3% respectively

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

Footwear Export Markets

Others

Source: Lefaso, 2005

According to the country's General Statistics Office, Vietnamese footwear has foundmarket 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 ofUS$2.6 billion, increasing 15% over 2003 Up to the year 2005, the footwear industryexport volume has reached 3.039 billion USD (2.34 billion Euro)., of which sport shoesaccounted for around 67%, lady shoes 19.5%, canvas shoes 7%, and slippers and sandals6%

Vietnam will intensify export of footwear to traditional markets, including the UnitedStates and the European Union (EU), in a move to reap 6.2-6.5 billion U.S dollars fromexporting the products in 2010

The footwear industry is considered as one of the strategic economic sector ofVietnam It has been developing very fast over the last decade It is today the third largestforeign currency earner of the country after crude oil and garments The footwear industryhas some 300 manufactures engaged in footwear manufacturing and leather tanning,including 35 sate-owned companies, 191 private enterprises and 134 foreign investedcompanies Private and foreign invested companies are playing an increasingly importantrole Foreign invested units have demonstrated its prevailing advantage in productioncapacity, output and market as a result of huge investment with a number of efficientprojects The share of export contributed by these non-state companies has increased fromaround 73.5% in 2000 to around 83% in 2003

The footwear industry plays an important role in Vietnam's exports, accounting for10% of the annual total

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

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

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

Source: Ministry of Trade.

Along with its contribution to the national export figures, the industry plays a majorrole 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 ofindustrial workers, who come from rural areas outside the surveyed enterprises, isapproximately 50-70% In certain businesses it is higher than 80% The proportion ofwomen workers aged 18 to 25 is approximately 70% The high proportion of womenworkers is an advantage for the industry, as women in Vietnam are preferred to men in jobsrequiring attention to detail and skill However, these immigrant women workers are themost vulnerable when there is an external factor affecting their income and employment, asthey 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 millionpeople whose living standards are quite high and demand for shoes is big With annualimports of 800 pairs of footwear, this market amounts to 29,3% of the total world footwearconsumption While in 1995 Vietnamese footwear earned only US $400m in exports, thisincreased 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 GeneralizedSystem of Preferences that EU has granted to Vietnam under which preferential tariffsequal 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 favorableconditions As the EC data, since 1996, Vietnam has ranked third largest in footwearexported to the EU, after China and Indonesia Europe's colder climate and weathercharacteristics 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'stotal annual footwear export Moreover, the footwear industry also generates Vietnam'slargest 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'stotal 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 Vietnamesefootwear

In the coming years, the EU will likely to continue to be the dominant market forVietnam's footwear Vietnam also eyes revenue of over 4.7 billion dollars for footwearexported to the EU in 2010, accounting for more than 7.5 percent of the block's totalfootwear 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), whichrepresents EC footwear producers with combined market share of more than 40% in upperleather footwear, field a petition with the European Commission requesting an anti-dumping investigation into 33 types of footwear with leather uppers from Vietnam andChina The CEC alleged that Vietnam and China exported footwear products to theEuropean market at prices lower than the normal cost, causing injury to EU leatherfootwear industry

In July 7, the EC official launched the anti-dumping investigation of leather uppersfootwear importing from Vietnam and China According to law, the EC will investigateVietnam and China to determine whether or not producers followed market economyconditions in the process of production and sales From that point, investigators willconsider production costs to decide if the products have indeed been dumped The criteriafor 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 accountingstandards (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 andChina

From September 22 to October 14, 2005, the EC selected eight Vietnameseenterprises as a sample for investigation

On November 23, 2005, the EC concluded that none of the eight enterprises in thesurvey met the criteria for market economy as regulated by the EC law

Although the EC could not identify absolutely whether export prices were lower thannormal cost, enterprises in the study were denied market economy treatment based ongovernment participation in the form of low interest rates, regulated land prices, and taxpreference

On February 23, 2006, EC announced the time schedule the EC imposed provisionalduties 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 afinal decision on the case

On October 6, 2006, the EU has officially imposed an anti-dumping duty of 10% onVietnamese upper leather footwear

2.3 The petitioner's arguments

Ten sampled Community producers are located in five different Member States Theyrequested that their identities be kept confidential as the disclosure of their identity couldlead to a risk of significant adverse effects Certain complainants Community producerssupply customers in the Community that also source their products from Vietnam, thusbenefiting from these imports Those complainants are therefore in a sensitive positionsince some of their clients may not be satisfied with their lodging or supporting acomplaint

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, andpresently 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, andKazakhstan

is a member of the WTO at the date of the

Albania, Armenia,

initiation of the investigation Kyrgyzstan, Moldova and

Mongolia

Tajikistan, Turkmenistan,and Uzbekistan

Source: Swedish National Board of Trade

Eight Vietnamese companies have been selected to be samples for exportingproducers The following table summarizes the determination for each company againsteach of the five criteria set out by the European Commission

Table 4 EU investigation outcomes

Businessdecisions

Accountingstandard

Assetsand'carryover'

Legalenvironment

Currencyexchange