WORLD TRADE
ORGANIZATIONG/SG/N/8/ARG/1/Suppl.1
G/SG/N/10/ARG/1/Suppl.4G/SG/N/11/ARG/1/Suppl.4
18 July 2000
(00-2935)
Committee on Safeguards Original:  Spanish
NOTIFICATION UNDER ARTICLE 12.1(b) OF THE AGREEMENT ON
SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT
THEREOF CAUSED BY INCREASED IMPORTS
NOTIFICATION PURSUANT TO ARTICLE 12.1(c) AND ARTICLE 9,
FOOTNOTE 2, OF THE AGREEMENT ON SAFEGUARDS
ARGENTINA
Supplement
The following communication, dated 7 July 2000, has been received from the Permanent
Mission of Argentina.
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1. Evidence of serious injury or threat thereof caused by increased imports.
The NATIONAL FOREIGN TRADE COMMISSION has completed an investigation to
determine the existence of serious injury in connection with the product defined in Part 3 of this
notification, the results of which are recorded in Directive No. 636 of 29 June 2000.
Domestic output of performance sports footwear fell by 27 per cent in 1998 and by 19 per
cent in 1999, declining from 12.7 million pairs in 1997 to 7.6 million pairs in 1999.  In 1998, the fall
in output affected all the sector's enterprises, whereas in 1999 the trend was less uniform.  Moreover,
the fall in "performance sports footwear" output was greater than that for other footwear and for  the
manufacturing industry as a whole.
A considerable proportion of the fall in the output of the company Alpargatas was attributable
to a reduction in its exports to Brazil in 1998 and 1999 as a result of an unforeseen rupture of the
licensing agreement with NIKE.
Production capacity increased by 7 per cent as a result of the continuous restructuring and
modernization, rising from 19.1 million pairs in 1997 to 20.4 million pairs in 1999.  Thus, the
production capacity utilization coefficient fell from 66 per cent in 1997 to only 37 per cent in 1999.
The industry's sales on the domestic market, decreased by 6 per cent in volume terms during
1998 and by a further 15 per cent during 1999, falling from 8.1 million pairs to 6.6 million pairsbetween 1997 and 1999.  These sales had already declined significantly between 1996 and 1997.
Income from sales on the domestic market also decreased, but to a lesser extent than sales by
volume:  -3 per cent in 1998 and -11 per cent in 1999, falling from almost Arg$172 million in 1997 to
Arg$149 million in 1999.  This difference in trends was due to an increase in the average return perunit sold, which grew by 3 per cent in 1998 and by 5 per cent in 1999.G/SG/N/8/A RG/1/Suppl.1
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During the period investigated domestic stocks of performance sports footwear declined.
After having increased by 159 per cent between 1996 and 1997, to reach 2.4 million pairs, stocklevels fell in 1998 and again in 1999, by 20 per cent and 5 per cent respectively.  At the end of the
period in question, the industry had 1.8 million pairs in stock.  The favourable outlook led companies
to increase their planned levels of production, a decision which gave rise to an increase in inventories
without an increase in sales, with imports mainta ining a strong position in the market during 1997 and
1998.
Among production workers employment fell by 3 per cent in 1998 and by 17 per cent in
1999.  The number of people employed in production declined from 6,147 to 4,953.
During the period investigated, the total number of workers employed by the companies that
make up the industry fell from 10,276 to 9,167.
The number of hours worked per year was more than 13 million in 1997 but only just over
10 million in 1999.
Labour productivity in the production branch also fell:  0.96 pairs were produced per
employee per hour in 1998 but only 0.75 pairs per employee per hour in 1999.
The production wage bill also declined, falling from 41.3 million in 1997 to 31.5 million in
1999.
The average monthly wage for production work ers, which in 1997 had reached Arg$561 per
employee per month for the industry as a whole, fell to Arg$529 per employee per month in 1999.
With more capacity and human resources lying idle, the general trend was for costs to
increase.
There is no clear trend in the prices of the m odels in general;  in some cases they increased,
whereas in others they fell.  However, the general trend is slightly downward.
The fact that the average income from sales for the industry as a whole increased during the
period from Arg$21.2 in 1997 to Arg$22.8 in 1999 may be attributable to a change in sales
composition, with fewer lower-priced and a greater proportion of higher-priced products.
The effect on the industry's productivity of the coll apse in output and the fall in sales of own-
production for the domestic market frustrated the efforts made to reduce costs during the period in
which the safeguard measures were in force;  t hus, the reduction of more than Arg$16 million in
variable costs between 1997 and 1999 and Arg$10 million in total costs was cancelled out, and
instead of results improving, the specific losses of the industry as a whole on performance sports
footwear production increased, rising from Arg$30.2 million in 1997 to Arg$43.8 million in 1999.
Between 1997 and 1999, total sales suffered a sharp decline from Arg$409.1 million to only
Arg$256.4 million.  This trend in sales had an adverse effect on the domestic industry, in particular,
on gross and net profits, increasing indebtedness and the impact of financial charges.
An analysis of the half-yearly data on the specific accounts for "performance sports
footwear", which are directly indicative of the results achieved by the domestic industry in question,
reveals increases in sales of own-production on the domestic market during the second half of 1997 as
compared with the first half of the same year and in the first half of 1998 as compared with the secondG/SG/N/8/A RG/1/Suppl.1
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half of 1997.  Likewise, there were decreases in the second half of 1998 and the first half of 1999 and
increases in the second half of 1999.  These sales were less than required to cover the fixed and
variable costs during all these half-years, with th e exception of the first half of 1998 and the second
half of 1999.
2. Information on whether there is an absolute in crease in imports or an increase in imports
relative to domestic production (see also Article 12.1 for the context).
The analysis carried out by the NATIONAL FOREIGN TRADE COMMISSION established
the following indicators.
During the period investigated, imports continued to increase up to 1998 inclusive, despite the
measure and also despite a decrease in appa rent consumption.  Imports from non-MERCOSUR
countries rose from 4.01 million pairs in 1997 to 4.33 million pairs in 1998;  if imports by the
domestic industry itself are excluded, the increase is even greater, with imports rising from
2.98 million pairs in 1997 to 4.08 million pairs in 1998.  It should be noted that the 1997 importfigures were themselves higher than those for 1996.
Imports from MERCOSUR, on the contrary, fell during the period, from 1.05 million pairs in
1997 to 0.57 million pairs in 1998.
Extrazonal imports increased their share of the domestic market, rising from 30 per cent of
apparent consumption in 1997 to 34 per cent in 1998.  In terms of domestic production, these imports
rose from 32 per cent in 1997 to 47 per cent in 1998.
The rising trend in imports was interrupted in 1999 when imports fell by 43 per cent while
apparent domestic consumption decreased by 24 per cent.
Consequently, in 1999, for the first time since the safeguard measure was imposed, the
domestic industry experienced relief from import pressures and increased its share of apparent
consumption from 61 per cent to 69 per cent, while extrazonal imports saw their share decrease from
34 per cent to 26 per cent.  There was also a decline in imports as a percentage of domestic
production, from 47 per cent in 1998 to 33 per cent in 1999.
3. Precise description of the product involved
The product is identified in tariff headings NCM 6402.12.00, 6402.19.00, 6402.91.00,
6402.99.00, 6403.12.00, 6403.19.00, 6403.91.00, 6403.99.00 and 6404.11.00, in each of which
performance sports footwear is distinguished fr om other sports footwear on the basis of the
constituent materials.
The NATIONAL FOREIGN TRADE COMMISSION's investigation started out from a
definition of "performance sports footwear" based on the physical and technical characteristics, uses
sand substitutability, production process, marketing channels, consumer perception and price.Domestically manufactured "performance sports footwear" is like to or directly competitive with the
imports subject to investigation.
4. Precise description of the proposed measure.
The safeguard measure will take the form of a quantitative restriction (tariff quota) and
specific minimum import duties.G/SG/N/8/A RG/1/Suppl.1
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5. Proposed date of introduction of the measure.
The proposed date for extending the measure is end July 2000.
6. Expected duration of the measure
The expected duration of the extension is three and a half years from the date of publication.
7. For a measure with a duration of more than three years, provide the proposed date for the
review to be held not later than the mid-term of th e measure, if such a date for the review has already
been scheduled.
Not applicable.
8. If the expected duration is over one year, provide expected timetable for progressive
liberalization of the measure.
The specific duties will be reduced by ten per cent in the first year and by ten per cent in the
second year of operation of the measure.  The quota will increase by five per cent in the first year and
ten per cent in the second year of operation of the measure.
9. If the measure is being extended, also provide:
(i) Evidence that the industry concerned is adjusting and that the safeguard measure
continues to be necessary to prevent or remedy serious injury.
As part of its investigation, the NATIONAL FOREIGN TRADE COMMISSION has been
able to confirm that the domestic producers of performance sports footwear have established, within a
strategic approach, clear objectives for adjusting to the competition from imports and in severalrespects have been able to achieve positive, albeit partial results.
Despite the pressure from imports, the industry has endeavoured to invest in its industrial
plants by purchasing new capital equipment and in its personnel through training programmes.
Variable costs have fallen and this has had a direct impact on the companies' marginal
contributions.  Their training programmes, capital investment and restructuring have also resulted inan 18 per cent reduction in fixed manufacturing costs, excluding restructuring costs.
The companies have been able to reduce other fixed costs by more than 16 per cent by
carrying out internal reorganization and modifying their distribution systems.
Despite these efforts, in 1997 and 1998 the industry's plans were largely frustrated by the high
level of imports.  In 1997, the expected increase in sales with increased production did not
materialize.  Because imports continued to enter at high levels and displaced domestic sales, the
industry was forced to accumulate stocks, which imposed a significant cost burden on the various
companies.
In 1998, after being hard hit by falling production levels, the companies reduced the scale of
their operations.  The data show that the industry's capacity utilization indices are very low.  BecauseG/SG/N/8/A RG/1/Suppl.1
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production levels fell so much, companies were obliged to cut back their workforce and reorganize
production in a smaller number of plants.
Wherever possible, companies tried to susp end their workers rather than dismiss them
directly.  This involved significant costs associated with maintaining the workforce while production
levels were clearly being held down.  Thus, plans such as that to reduce costs by outsourcing cutting
and assembly operations to smaller companies had to be cancelled in order to provide employment for
the companies' own workers.
A serious obstacle to the adjustment of the performance sports footwear industry is the fact
that the sector continues to be heavily indebted, while the extraordinarily high cost of financing the
debt is making it difficult for sales to cover cost s.  Although the companies have made progress with
restructuring their debt, this entire process has had an adverse effect on their operations and profits
and has led to a further delay in the adjustments necessary to make the industry competitive.
The ineffectiveness of the measures in 1997 and 1998 also weakened the capacity of the
industry to develop the marketing of its own brands on the domestic and regional markets and to
introduce new international brands for which licences had been obtained.  The 1999 recession was a
further blow to the adjustment programme, but clea rly the main obstacle to the adjustment of the
industry during the period in question was imports and, in particular, import trends during 1997 and1998.
Although the industry has made serious efforts to adjust, the results essential to the success of
the adjustment process have not been achieved.  Thus, sales failed to increase because of the growth
in imports.  More recently, during 1999, as a result of the measures which entered into force inDecember 1998 imports began to fall.  Thus, in practice, the industry has lost the advantage of two
years of safeguard measures and, accordingly, in 1999 found itself in a situation significantly more
vulnerable than that which prevailed in 1997.
(ii) Reference to the WTO document that notified the initial application of the measure.The initiation of a safeguards investigation and the application of a provisional safeguard
measure were notified to the Committee on Safe guards in a communication dated 21 February 1997,
published in document G/SG/N/6/ARG/1, in docum ent G/SG/N/7/ARG /1 dated 25 February 1997 and
in G/SG/N/10/ARG/1/SUPPL. 1.
(iii) Duration of the measure from initial application to the date at which it will be
extended.
Application of the measure began on 25 February 1997 and it is proposed to extend it until
end January 2004.
(iv) Precise description of the measure in place prior to the date of extension (in this
context, please note that the last sentence of Article 7.4 states that:  "a measure
extended under paragraph 2 shall not be more restrictive than it was at the end of the
initial period, and should continue to be liberalized").
The safeguard measure in force took the form of quotas and specific duties.  For further
details see the annex to Resolution ME No. 122/2000 appended as Annex II.G/SG/N/8/A RG/1/Suppl.1
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Notifications Under Article 9, Footnote 2
Notification to the Committee on Safeguards of non-application of a safeguard measure to developing
countries under Article 9.1 of the Agreement on Safeguards
1. Specify the measure
The safeguard measure will take the form of a quantitative restriction (tariff quota) and
minimum specific import duties.
2. Specify the product subject to the measure
The product is identified in the NCM tariff head ings indicated in the Annex, in each of which
performance sports footwear is differentiated from other sports footwear on the basis of its
constituents.
The investigation started out from a definition of "performance sports footwear" based on
physical and technical characteristics, uses and substitutability, production process, marketing
channels, consumer perception and price.  Domestically produced "performance sports footwear" is
like to or directly competitive with the imports under investigation.
3. Specify the developing countries to which the measure is not applied under Article 9.1 of the
Agreement on Safeguards, and the import shares of these countries individually and collectively.
SHARE BY ORIGIN OF EXTRA-MERCOSUR IMPORTS
(in pairs)
Origin 1999 Share
KOREA 2,721 0.11
Philippines 1,048 0.04
Morocco 10 0.00
Latvia 6 0.00
Slovakia 2 0.00
Lithuania 2 0.00
Czech Republic 1 0.00
TOTAL 3,788 0.15
Source:  Compiled by DCD on the basis of DGA data.
4. If there is a change in the list of developing countries exempted from the safeguard measure
pursuant to Article 9.1, please notify:
(i) The reference to the WTO document that notified the Members about the initial action
under footnote 2 to Article 9.1;
The WTO document in which the initial measure was notified to Members is document
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(ii) if applicable names of the countries which are dropped from the list of developing
countries to which the safeguard measure does not apply pursuant to Article 9.1, the
list of the countries remaining on the list, the individual and collective import sharesof the developing countries remaining on the list, and the date on which the safeguard
measure applies to the countries dropped from the list;
(iii) if applicable, names of the countries which are added to the list of developing
countries to which the safeguard measure does not apply pursuant to Article 9.1, the
list of all the countries on the list, the individual and collective import shares of the
developing countries on the list, and the date from which the safeguard measure doesnot apply to the countries which are added to the list.G/SG/N/8/A RG/1/Suppl.1
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ANNEX II
Annex 1 to Resolution No. 122
Tariff headingMinimum specific duties
on footwear imports
US$ per pair
6402.12.00 0.00
6402.19.00 6.40
6402.91.00* 6.40
6402.99.00* 5.65
6403.12.00 0.00
6403.19.00 10.60
6403.91.00* 9.15
6403.99.00 6.60
6404.11.00 6.25
*Tennis, basketball, gym, training and similar shoes only.G/SG/N/8/A RG/1/Suppl.1
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ANNEX II TO RESOLUTION NO. 122
Tariff heading 25/2/00 to 24/5/00
(in pairs)**25/5/00 to 25/7/00
(in pairs)**
6402.12.00 - -
6402.19.00 44,691 29,794
6402.91.00 * 27,748 18,498
6402.99.00 * 174,323 116,215
6403.12.00 - -
6403.19.00 77,402 51,601
6403.91.00 * 58,277 38,851
6403.99.00 * 112,682 75,121
6404.11.00 145,891 97,260
TOTAL 641,014 427,340
** The quota level established in this Annex includes the 10 per cent increase under Article 6 of the
Resolution ex-MEYOSP No. 1506/98.
* Tennis, basketball, gym, training and similar shoes only.G/SG/N/8/A RG/1/Suppl.1
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ANNEX III TO RESOLUTION NO. 122
Tariff headingMinimum specific duties on footwear
imports
US$ per pair
6402.12.00 0.00
6402.19.00 12.80
6402.91.00 * 12.80
6402.99.00 * 11.30
6403.12.00 0.00
6403.19.00 21.20
6403.91.00 * 18.30
6403.99.00 * 13.20
6404.11.00 12.50
* Tennis, basketball, gym, training and similar shoes only.
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