China and the European Union are squaring off again.  Call it the “Shoe War”.

Has It Been Dumped?

Back in 2006, the EU found that China and Vietnam were dumping (roughly, selling at lower than cost) leather shoes in European markets, causing havoc for European shoe manufacturers.  There are plenty of them, of all sizes, scattered throughout the EU, and they have clout.  Not surprisingly, it was the Italians that really pushed Brussels to act.  The EU applied up to a 16.5% antidumping duty to the Chinese shoes, and aimed less of a punch at the Vietnamese, who now suffer from a 10% penalty.  (Antidumping duties can vary by country and manufacturer, depending on how much they are judged to have underpriced their product.)  Beijing complained mightily at the time, but their cries came to nought.  In fact, Brussels just extended the antidumping duties for another 18 months in December.  That’s when the shoe hit the wall in Beijing.

China filed a formal complaint with the World Trade Organization in Geneva last Thursday, triggering the WTO’s dispute settlement process.  Brussels now has 60 days in which to reach a bilateral compromise with Beijing – or the WTO will convene a three-member panel of exports to review a case that observers think China has a good chance at winning.  I expect that Vietnam will want to sign on to China’s complaint at some point in this process.  The pressure is high for Brussels to reach a compromise.  A group of European retailers, including some shoe manufacturers, has coalesced to lobby Brussels to end the antidumping duties.  The European Footwear Alliance, which includes, Ecco, Adidas, Hush Puppies and Timberland, says that continuing the duties will cost European consumers and retailers hundreds of millions of Euros.  They note, says the Associated Press, that the antidumping duties bring €1 billion (nearly $1.4 billion) into European official coffers, a powerful incentive to keep them in place as long as possible.  I’m not sure I quite believe that number.

Brussels, of course, doesn’t accept Beijing’s arguments and says the impact on Chinese shoe sales in Europe is minimal.  They argue that the average price for a pair of imported shoes is €9 and that the duties add about €1.50 on top of that.  That, says the EU, is swamped by retailers marking the shoes up to €50 a pair.

I’m encouraged by this case.  China, because of its aggressive export growth, has become the most “popular” target for disputes in the WTO.  This case and others show that Beijing is learning how to push its own interests as a WTO member, not just as the vociferous bleats of the past.  China’s trade policy is maturing and they are now trying to resolve trade disputes within a system that works.  They won’t win every case, but they know the WTO’s mechanism is fair and reasonable.  The Wall Street Journal says that China has opened new offices just down the street from the WTO headquarters in Geneva (just like the United States did years ago) and that they are bringing in high-priced talent (read: trade lawyers) to pursue such cases.  Look for more.