Commission Regulation (EC) No 553/2006 of  23 March 2006  imposing a provisional anti-dumping duty on imports of certain footwear with uppers of leather originating in the People's Republic of China and Vietnam
Date: 2006-03-23
Institutions: European Commission
Subjects: China, Viet Nam, anti-dumping duty, anti-dumping legislation, footwear industry

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COMMISSION REGULATION (EC) No 553/2006

of 23 March 2006

imposing a provisional anti-dumping duty on imports of certain footwear with uppers of leather
originating in the People's Republic of China and Vietnam

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped
imports from countries not members of the European Community (the basic Regulation) (1), in particular
Article 7 thereof,

After consulting the Advisory Committee,

Whereas:

1. PROCEDURE

1.1. Initiation of the proceeding

(1)

(2)

(3)

(4)

On 7 July 2005, the Commission announced by a notice (notice of initiation), published in the
Official Journal of the European Union (2), the initiation of an anti-dumping proceeding concerning
imports into the Community of certain footwear with uppers of leather originating in the People's
Republic of China (PRC) and Vietnam.

The anti-dumping proceeding was initiated following a complaint lodged on 30 May 2005 by the
European Confederation of the Footwear industry (CEC) on behalf of producers representing a major
proportion, in this case more than 40 %, of the total Community production of certain footwear with
uppers of leather.

1.2. Parties concerned and verification visits

The Commission officially advised the exporting producers in the PRC and Vietnam and the impor-
ters/traders known to be concerned, the representatives of the exporting countries concerned, the
complainant Community producers and their associations of the initiation of the proceeding. The
interested parties were given the opportunity to make their views known in writing and to request a
hearing within the time limit set in the notice of initiation.

In view of the high number of Chinese and Vietnamese exporting producers and Community
producers, sampling was envisaged in the notice of initiation for the determination of dumping
and injury,
It should be noted that no
sampling was applied for the importers and the traders in the Community, which were all asked
to cooperate.

in accordance with Article 17 of the basic Regulation.

(1) OJ L 56, 6.3.1996, p. 1. Regulation as last amended by Regulation (EC) No 2117/2005 (OJ L 340, 23.12.2005,

p. 17).

(2) OJ C 166, 7.7.2005, p. 14.

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(5)

(6)

(7)

In order to allow exporting producers in the PRC and Vietnam to submit a claim for market
economy treatment (MET) or individual treatment (IT),
if they so wished, the Commission sent
claim forms to the exporting producers known to be concerned and to the authorities of the two
countries concerned.

The Commission sent questionnaires to the 10 Community producers selected in the sample, to the
exporting producers in the samples selected for the countries concerned, to all importers known to
be concerned and to all importers that made themselves known within the deadlines set out in the
notice of initiation. In addition, questionnaires were sent to the national footwear associations of the
Member States of the Community where manufacturing companies are concentrated in order to
obtain general information on the development of their situation, and to a consumer association.

Questionnaire replies were received from 12 of the sampled Chinese exporting producers, with one
of the Chinese exporting producers in the sample choosing not to cooperate further, from four
Chinese exporting producers requesting individual examination in accordance with Article 17(3) of
the basic Regulation, from the eight sampled Vietnamese exporting producers and from another four
Vietnamese exporting producers requesting individual examination in accordance with Article 17(3)
of the basic Regulation. Replies were also received from the 10 sampled Community producers, 39
importers not related to an exporting producer. Submissions were also received from three asso-
ciations of importers.

(8)

The Commission sought and verified all the information it deemed necessary for the purpose of a
preliminary determination of dumping, resulting injury and Community interest. Verification visits
were carried out as follows:

(a) C o m m u n i t y p r o d u c e r s

Verification visits were carried out at the premises of the ten sampled Community producers, located
in five different Member States. The sampled Community producers as well as other cooperating
Community producers requested, on the grounds of the provisions of Article 19 of the basic
Regulation, that
their identities be kept confidential. They claimed that the disclosure of their
identity could lead to a risk of significant adverse effects.

from PRC and Vietnam,

Certain complainant Community producers supply customers in the Community that also source
their products
thus benefiting directly 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 against alleged injurious dumping. For these reasons
they considered that there was a risk of retaliation by some of their clients, including the possible
termination of their business relationship. The request was granted as it was sufficiently substantiated.

The representatives of certain exporting producers and one unrelated importer claimed that they
could not properly exercise their right of defence because the identity of the complainants had not
been disclosed. They argued that, in those circumstances, they could not verify that the complainants
were truly representative. However,
the individual production volume of each
complainant was made available for inspection by the interested parties, thus even if the names of
those companies were blanked out, their representative quality could be verified. The claim was
therefore rejected.

it is noted that

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(b) U n r e l a t e d i m p o r t e r s i n t h e C o m m u n i t y

— Adidas Salomon AG, Germany,

— C&J Clark International Limited, United Kingdom,

— George Clothing Ltd, United Kingdom,

— Nike European Operations BV, The Netherlands,

— Puma AG Rudolf Dassler Sport, Germany,

— Timberland Europe BV, The Netherlands.

(c) E x p o r t i n g p r o d u c e r s i n P R C

— Apache Footwear Ltd (APE I),

— Apache Footwear II Ltd (APE II),

— FED International Corp. (FED),

— FuGuiNiao Shoes Development Co. Ltd (FS),

— Golden Step Industrial Co. Ltd (GS),

— Growth-Link Overseas Co. Ltd (GLO),

— Heng Tai Hong Wei Shoes Co. Ltd (Heng Tai),

— Laikong Footwear Co. Ltd (Laikong),

— Laitin Footwear Co. Ltd (Laitin),

— Poong Won Chehwa Co. Ltd (PWC),

— Sun Sang Kong Yuen Shoes FTY (Hui Yang) Co. Ltd (SSKY),

— Yue Yuen Group (Yue Yuen).

(d) E x p o r t i n g p r o d u c e r s i n V i e t n a m

— Pou Yuen Vietnam Enterprise Ltd, Yuen Yuen,

— Pou Chen Vietnam Enterprise Ltd, Yuen Yuen,

— Taekwang Vina Industrial Co. Ltd,

— Haiphong Leather Products and Footwear Company

— Company No 32,

— Dona Biti's IMEX Corp. Pte. Ltd,

— Binh Tien Imex Corp. Pte. Ltd,

— Kai Nan Joint Venture Co. Ltd.

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In view of the need to establish a normal value for exporting producers in the PRC and Vietnam to
which MET might not be granted, a verification to establish normal value on the basis of data from
an analogue country, Brazil in this case, took place at the premises of the following companies:

— Bison Indústria de Calçados Ltda,

— Calçados Azaleia SA,

— H. Bettarello Curtidora e Calçados Ltda.

1.3. Investigation period

(9)

The investigation of dumping and injury covered the period from 1 April 2004 to 31 March 2005
(the investigation period or IP). The examination of trends relevant for the assessment of injury
covered the period from 1 January 2001 to the end of the IP (the period considered).

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. General

(10)

The product under investigation is footwear with uppers of leather or composition leather (footwear
with uppers of leather), other than:

— sports footwear within the meaning of subheading note 1 to Chapter 64 of the Combined
Nomenclature,
footwear which is designed for a sporting activity and has, or has
provision for, the attachment of, spikes, sprigs, stops, clips, bars or the like, and (ii) skating
boots, ski-boots and cross-country ski footwear, snowboard boots, wrestling boots, boxing boots
and cycling shoes,

i.e.

(i)

— slippers and other indoor footwear,

— footwear with a protective toecap.

(11)

The product scope therefore mainly includes sandals, boots, urban footwear and city shoes.

(i) Special technology athletic footwear

(12)

Various exporting producers and importers claimed that certain specific types of sports footwear,
other than those mentioned above, should also be excluded from the product scope. This claim is
based on the allegation that, in view of their specificities, such types of footwear and other types of
footwear with uppers of leather could not be considered as forming one single product.

(13) More specifically, this claim concerns footwear for use in sporting activities and involving a special
technology called ‘STAF’, i.e. special technology athletic footwear. In this context, footwear for use in
sporting activities should be taken to mean tennis shoes, basketball shoes, gym shoes, training shoes
and the like. The footwear concerned (i.e. STAF)
is currently classified within CN codes:
ex 6403 91 11, ex 6403 91 13, ex 6403 91 16, ex 6403 91 18, ex 6403 91 91, ex 6403 91 93,
ex 6403 91 96, ex 6403 91 98, ex 6403 99 91, ex 6403 99 93, ex 6403 99 96, ex 6403 99 98.
The claims concerning STAF have been analysed in detail. Firstly, it was established that STAF are
highly sophisticated footwear that have distinctive technical features and are designed specifically for
use in sporting activities. Those features mainly include a complex outsole designed to protect part of
the athlete's heel and forefoot and an additional mid-sole with special cushioning or stabilising
elements featuring shock absorption and/or motion control. Those features are essential
in order
to increase performance and avoid injuries when practising sporting activities.

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(14)

To incorporate those features, significant research and development costs in terms of design, specially
incorporated materials, as well as on-site testing are incurred. Those additional costs generally result
in a higher import price for STAF footwear as compared to other types of footwear.

(15)

Secondly, the investigation revealed that STAF is different from the other types of footwear since (i) it
is normally sold via different sales channels, (ii) it has usually a different end-use and consumer
perception and (iii) import trends of STAF have developed differently compared to other types of
footwear. These differences are set out below in detail.

(16)

Concerning the distribution channels, STAF is largely sold in stores that are exclusively specialised in
sports equipment or, in the case of large brand retail chains or department stores, in displays/sections
specifically dedicated to sports items. On the other hand, other types of
footwear are mostly
distributed via footwear retailers, brand or not, or even supermarkets.

(17)

The fact that STAF is distributed via different sales channels also indicates that consumers perceive
STAF differently from other types of footwear. More precisely, it is also considered that consumers of
sporting equipment clearly make the distinction between footwear specifically designed for sporting
activities and other types of footwear, including those casual types of footwear that look like sports
shoes (casual footwear), although not having the STAF characteristics. In addition, while STAF could
be used for daily, non-sportive use, similar to other types of footwear, those other types of footwear
are certainly not suitable for sporting activities. Therefore the degree of interchangeability between
STAF and non-STAF footwear is rather limited.

(18) Moreover, the investigation showed that imports from the countries concerned of STAF developed
differently in recent years as compared to the other types of footwear. While STAF import volumes
even decreased by 5 % between 2003 and the IP, imports of non-STAF types rose by more than 50 %
during the same period. In terms of price developments, the decline in STAF import prices from the
countries concerned was clearly less marked than for the other types of footwear: between 2003 and
the IP, the average STAF price decreased by 6 %, whereas the average price for other types decreased
by 12 %. Finally, the average import price of STAF from the countries concerned during the IP was
almost 40 % higher than the non-STAF average import price.

(19)

For the above reasons, i.e. differences of basic physical and technical characteristics, sales channels,
end-use and consumer perception, it is provisionally concluded that STAF should be excluded from
the definition of the product concerned, and thus from the scope of this investigation.

(20)

The Community footwear industry claimed that fashion trends in recent years have played an
essential role as they have brought sports shoes into the market segment of casual footwear. They
also alleged that both types of footwear are sold through the same distribution outlets and that
consumers often buy and use STAF for purposes other than sports. Therefore, in the opinion of the
Community industry, STAF should not be excluded from the scope of the product concerned.

(21)

In this respect, even if fashion trends may have had an impact on the consumer's choice and
preferences, they certainly do not affect the essential basic physical and technical characteristics of
a product, and therefore do not alter the above conclusions.

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(22)

It is also considered that if casual footwear has become extremely popular in the last years, this
fashion trend concerns casual shoes overall, and more specifically the look-alike sports type of shoes
or even sports shoes not having STAF features. Even if STAF shoes may also, in the context of this
fashion for casual shoes, be used for a purpose different from that for which they were designed, this
remained a very limited phenomenon, which was moreover not based on the specific and unique
features of STAF, but on the mere fact that they look similar to the look-alike sport shoes.

(23)

The claim that fashion trends resulted in an increasing consumption of STAF on the Community
market is not supported by the import data. As a matter of fact, as shown above, STAF imports, thus
Community consumption since this type of footwear is mainly produced in the two countries
concerned with only very negligible production in the Community, decreased in recent years. It
should also be pointed out that the claim made by the Community industry referred to all types
of sports shoes, and not specifically STAF, which were, as mentioned above, given that they look
similar to the look-alike sport shoes, only marginally affected by the general fashion trend.

(24)

It is however acknowledged that STAF are sometimes distributed in non-sports specialised retail
shops, and that there may be a certain degree of competition between STAF and non-STAF type
of footwear. However, as this remains within a limited scale, it is not deemed sufficient to alter the
above conclusions.

(25) One Member State opposed the exclusion of STAF from the scope of the proceeding on the grounds
that this would imply a serious risk of circumvention. This is based on the allegation that a simple
physical control
footwear, and that such
distinction can be made only through a chemical analysis of the materials and technical tests on
the mechanic components incorporated in the footwear.

is not sufficient to distinguish the different

types of

(26) While it is not excluded that a simple physical control is not always sufficient to differentiate between
the types, this can not be considered a valid argument for the non-excludsion of STAF. Indeed, the
fact that it may sometimes physically to differentiate various types of shoes does not give rise to the
above conclusions that STAF should be considered a different type from the other leather footwear.
In addition, in many other instances, more than a physical control is required in order to identify
whether a product should or should not be covered by the scope of anti-dumping measures in place,
and this was never considered sufficient not to exclude such product from the scope of the measures.
The claim was therefore rejected.

(27)

Finally, certain interested parties claimed that all types of sports footwear, thus not only STAF, should
be excluded from the proceeding. These allegations are based on the same claims made for the
exclusion of STAF. The investigation however revealed that the conclusions with respect to STAF did
not apply to footwear not having the STAF characteristics. Rather, it was found that the conclusions
drawn in the two preceding recitals also apply in the case of those types of footwear, i.e. there is no
clear dividing line and there is direct competition between those and the remaining types of footwear.
The claim was therefore rejected.

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(28)

(29)

(ii) Children's Footwear

For the purpose of this proceeding, it is provisionally established that children's footwear shall mean
footwear with insoles of a length of less than 24 cm, and with a sole and heel combined having a
height of 3 cm or less. Those types of footwear are currently classified within the CN codes:
ex 6403 20 00, ex 6403 30 00, 6403 51 11, 6403 51 91, 6403 59 31, 6403 59 91, 6403 91 11,
6403 91 91, 6403 99 31, 6403 99 91 and ex 6405 10 00. The investigation will further have to
determine whether this definition should be modified for the purpose of any definitive measures.

It is recalled that, in a proceeding concerning footwear with uppers of leather and plastic (3), footwear
with insoles of a length of less than 24 cm, was not considered to fall within the definition of the
product concerned. The reason being that, in view of their specificities, children's footwear and other
types of footwear with uppers of leather were, at the time, not considered as forming one single
product. The Commission, therefore,
in the process of this investigation, examined whether such
footwear falls within the definition of product concerned or whether it merits a separate investi-
gation.

(30)

Firstly, there are indeed certain technical and physical differences between children's shoes and other
types of shoes. Because of their small size, the manufacturing process is considerably different;
specific skills are required to produce smaller footwear which is appropriate to the special physical
characteristics of children's feet, especially during the phase of muscular-skeletal development of the
early years.

(31)

Secondly, children's shoes are often sold via different sales channels compared to other footwear,
which also indicates that consumers may perceive children's shoes differently to other types of
footwear. More precisely,
it is considered that, as a rule, consumers of children's shoes clearly
made the distinction between footwear specifically designed for children and other types of
footwear. In addition, as compared to adult shoes, the market for children's shoes appears to be
less driven by fashion trends or other similar considerations; the emphasis instead appears to be more
on price and quality. Another element influencing consumer perception is certainly the fact that there
is a much higher turnover of children's shoes than of other footwear, because of children's physical
development.

On examination, at this stage of the proceeding, the arguments for and against the inclusion of
children's shoes in the definition of
the product concerned do not yet allow for a definitive
conclusion. Therefore, the Commission decided to provisionally treat children's shoes as forming
part of the product concerned, pending further investigation and consideration at the definitive stage.

(iii) Other claims

(32)

It was also claimed that the product definition is too broad to be considered one single product, since
it includes many different styles, materials and levels of quality, and that all those various types
should be analysed individually by various proceedings. This claim is based on the fact that the
product definition covers 33 different CN codes, thus allegedly giving an indication that many
different products are covered, and that the various types of footwear have different characteristics,
end-uses, production processes and are sold via different sales channels.

(3) Council Regulation (EC) No 467/98 (OJ L 60, 28.2.1998, p. 1).

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(33)

The number of different CN codes covered by the product definition is, as such, also irrelevant for
the question as to whether a product definition is broad or narrow. The relevant criteria applied in
order to determine whether or not the product, subject of an investigation, can be considered a single
product, i.e. its basic physical and technical characteristics, are set out in detail above.

(34)

Furthermore, even though the various types of footwear may indeed have different specific charac-
teristics, the investigation showed that, with the exception of STAF, their basic characteristics however
remain identical. In addition, the fact that the product concerned can be produced by using different
processes is not in itself a criterion which could result in a finding of two or more distinct products.
Finally, the investigation also revealed that the various types of the product concerned were generally
sold via the same sales channels. While some specialised shops may focus on certain specific types,
the vast majority of the distributors (retailers, department stores, supermarkets) sell all various types
of footwear, in order to offer a wide choice range to their customers.

(35)

Lastly, certain importers argued that the scope of the product, as defined in the notice of initiation, is
even broader than the product definition given by the complainants themselves, which was allegedly
limited to only three types of footwear.

(36)

In this respect,
it is pointed out that the definition of the like product set out in the notice of
initiation is exactly the same definition given in the complaint. The three types of footwear to which
it referred were given for illustrative purposes only. The complaint clearly indicates that those three
types represent the large majority of the imports from the countries concerned (more than 50 %).
This can certainly not be understood as a limitation of the scope of the proceeding to only those
three types.

(37)

In view of the above, the claims that the product definition is too broad were rejected.

(iv) Conclusion

(38) All the remaining footwear types, i.e. all leather uppers footwear excluding STAF, although they cover
a wide range of styles and types, their essential characteristics, their uses and consumer perception
remain basically the same.

(39)

In addition to the fact that they share the same basic physical and technical characteristics, all those
various styles and types are in direct competition and to a very large extent interchangeable. This is
clearly illustrated by the fact that there are no clear dividing lines between the various types, i.e. there
is quite some overlapping and competition between adjoining types.

(40)

In conclusion, for the purposes of this proceeding and in accordance with consistent Community
practice, it is therefore considered that all types of the product described above, with the exception of
STAF, should be regarded as forming one single product.

2.2. Product concerned

(41)

The product concerned is footwear with uppers of leather or composition leather, as described above,
originating in PRC and in Vietnam.

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(42)

The investigation has shown, as mentioned above, that all types of footwear with uppers of leather
despite the differences in terms of type and style, have the same basic physical and technical
characteristics,
i.e. outdoor footwear with uppers of leather, they are basically used for the same
purposes, and can be regarded as different types of the same product.

(43)

Therefore, for the purpose of this investigation the product concerned is footwear with uppers of
leather, as described in the ‘General’ part above, originating in PRC and Vietnam (the product
concerned). This product is currently classifiable within the following CN codes: ex 6403 20 00,
ex 6403 30 00, ex 6403 51 15, ex 6403 51 19, ex 6403 51 95, ex 6403 51 99, ex 6403 59 11,
ex 6403 59 35, ex 6403 59 39, ex 6403 59 95, ex 6403 59 99, ex 6403 91 13, ex 6403 91 16,
ex 6403 91 18, ex 6403 91 93, ex 6403 91 96, ex 6403 91 98, ex 6403 99 11, ex 6403 99 33,
ex 6403 99 36, ex 6403 99 38, ex 6403 99 93, ex 6403 99 96, ex 6403 99 98 and ex 6405 10 00.

(44)

It should be noted that until 1 January 2005, the products originating in PRC and falling within the
above CN codes were subject to a quantitative quota, with the exception of the products falling
within CN codes 6403 20 00 and ex 6403 30 00, and those footwear used for sporting activities and
involving a special technology.

(45)

It is therefore concluded that, for the purpose of the present anti-dumping proceeding, all types of
the product concerned are regarded as one product.

(46)

(47)

(48)

2.3. Like product

The investigation showed that the product concerned and the footwear with uppers of leather
manufactured and sold domestically in PRC and Vietnam as well as footwear with uppers of
leather produced and sold in the Community by the Community industry were similar as far as
their basic physical and technical characteristics and uses are concerned, and that they are perceived
by users as being interchangeable.

Certain interested parties argued that footwear with uppers of leather produced by the Community
industry and sold on the Community market was not similar to the product concerned. They claimed
that this is evidenced in particular by differences between products in terms of quality, consumer
perceptions, channels of sales and segmentation. It was further claimed that the consumers in the
Community usually perceive the product concerned as being a cheaper product and that those
products do not benefit from any brand premium.

The investigation revealed contradictory statements by importers in that respect. While some claimed
that the product concerned is usually of inferior quality and remains in a different price category
compared to Community made products, others claimed that brand footwear manufactured in the
countries concerned is imported at higher prices, probably of mediocre quality,
imported at an
extremely low price, from those same countries. On the other hand, the investigation confirmed
that in the Community both, low and high quality footwear are manufactured and sold via the same
distribution channels as the product concerned,
independent retailers, non-specialised super-
markets, department stores, etc.

i.e.

(49)

In addition, footwear does not necessarily indicate its country of origin, and it is therefore often very
difficult for the consumer to make the distinction between footwear manufactured in the countries
concerned and Community made products.

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(50)

it is considered that, whatever its origin, footwear produced in the countries
For those reasons,
concerned and in the Community compete at all
levels of the market and are not subject to
different consumer perceptions. While there may be some minor differences between the product
concerned and Community production,
it is considered that these differences do not affect the
substantial basic characteristics, properties and uses of the product.

(51)

Likewise, no major differences were found between the product concerned and footwear with uppers
of leather produced and sold both by the exporters/producers on their domestic market and sold by
producers in Brazil, which served as an analogue country for the purpose of establishing the normal
value for those companies that were not granted market economy treatment.

(52)

In view of the above, it is provisionally concluded that, in accordance with Article 1(4) of the basic
Regulation, and for the purpose of this investigation, all types of footwear with uppers of leather or
composition leather produced and sold in the countries concerned and in Brazil and those produced
and sold by the Community industry on the Community market are alike to those exported from the
countries concerned to the Community.

3. SAMPLING

3.1. Sampling for exporting producers in the PRC and Vietnam

(53)

In view of the large number of exporting producers in the PRC and Vietnam, sampling was envisaged
in the notice of initiation for the determination of dumping, in accordance with Article 17(1) of the
basic Regulation.

(54)

In order to enable the Commission to decide whether sampling would be necessary and, if so, to
select a sample, exporting producers were requested to make themselves known within 15 days from
the date of the initiation of the investigation and to provide basic information on their export and
domestic sales, their precise activities with regard to the production of the product concerned and the
names and activities of all their related companies involved in the production and/or selling of the
product concerned. The authorities in the PRC and Vietnam were also consulted.

3.1.1. Preselection of cooperating exporting producers

(55)

Some 163 companies in the PRC and 86 companies in Vietnam came forward and provided the
requested information within the given deadline set in the notice of initiation. However, only 154
Chinese exporting producers and 81 Vietnamese exporting producers reported exports to the
Community during the investigation period. Those exporting producers that exported the product
concerned to the Community during the investigation period and expressed a wish to participate in
the sample, were initially considered as cooperating companies and were taken into account in the
selection of the sample.

(56)

Exporting producers which did not make themselves known within the aforesaid period or did not
provide the requested information in due time, were considered as non-cooperating with the inves-
tigation.

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(57)

(58)

3.1.2. Selection of the sample

In the case of the PRC, a sample of the four largest exporting producers was originally considered in
line with Article 17(1) of the basic Regulation. This would have allowed a limited investigation and
in the course of the consultation process with the
still be reasonably representative. However,
interested parties, represented in this case by the Chinese authorities and the respective Chinese
producers' association, the Chinese authorities insisted that more companies be added to the list
in order to increase the representative level of the sample. Consequently, the sample was significantly
extended to 13 Chinese exporting producers, representing over 20 % of the Chinese export volume to
the Community. The Chinese authorities gave their full agreement to the sample chosen.

In the case of Vietnam, a sample of
the four largest exporting producers was also originally
considered in line with Article 17(1) of the basic Regulation. However, given the request made by
the Chinese authorities to increase the representative level of the sample of Chinese exporters, and in
order not
inrepresentative terms for the two countries
concerned, it was decided to also increase the size of the sample of the Vietnamese exporters to
eight companies. At the end of the discussion process with the Vietnamese authorities, which were in
contact with the Vietnamese association of producers, full agreement was reached with those autho-
rities on a sample of eight companies in Vietnam.

to have samples significantly different

(59)

In accordance with Article 17(1) of the basic Regulation, the following criteria were taken into
account in the selection of the sample:

— size of exporting producer with regard to export sales to the Community,

— size of exporting producer with regard to domestic sales.

(60)

it was considered essential to include in the sample, some
Regarding the second criteria above,
companies with domestic sales in order to have as representative a cross-section of the footwear
industry in the samples as possible. This was necessary, in particular, to have information available, in
the event that some or all exporters in the samples would fulfil the MET criteria, on prices and costs
associated with producing and selling the product concerned on the domestic markets of the
countries concerned. Therefore, only the major exporting companies which also represented a
major part of the domestic sales have been selected.

(61)

The selected companies accounted for respectively around 25 and 22 % of the export quantities to
the Community of the Chinese and Vietnamese cooperating exporting producers and respectively
around 42 and 50 % of domestic sales in the PRC and Vietnam reported by the cooperating
exporters. The exclusion of the STAF products did not significantly influence the representative
sample.

(62)

The cooperating exporting producers, which were not finally retained in the sample, were informed
through the Chinese or Vietnamese authorities that any anti-dumping duty on their exports would be
calculated in accordance with the provisions of Article 9(6) of the basic Regulation.

(63) Questionnaires were sent for completion to all sampled companies and replies from all of them,

except one in the PRC, were received within the given deadlines.

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3.1.3. Individual examination

(64)

Four exporting producers in the PRC and four exporting producers in Vietnam, which were not
included in the sample, claimed an individual dumping margin and have provided the relevant
information within the given deadline, with a view to the application of Articles 9(6) and 17(3)
of the basic Regulation. However, in view of the unprecedented size of the samples which concerned
20 companies and many other related parties, the Commission concluded, in accordance with Article
17(3) of the basic Regulation, that no individual examination of exporting producers in the PRC nor
Vietnam could be granted because this would have been unduly burdensome and would have
prevented completion of the investigation in good time.

3.2. Sampling of Community producers

(65) As far as Community producers are concerned, the Commission selected a sample based primarily on
the size of the relevant Community producers in terms of production volume. This was based on the
information provided by the producers themselves and by their national associations. In order to
receive a balanced picture of the footwear industry, the geographical location of the producers was
also considered. Thus, the sample, which primarily reflects the size and importance of the various
producing companies, also reflects the geographical spread of the industry in the Community. The 10
producers in the sample represent around 10 % of the production of the complainant Community
producers.

4. DUMPING

4.1. Market economy treatment (MET)

(66)

Pursuant to Article 2(7)(b) of the basic Regulation, in anti-dumping investigations concerning imports
originating in the PRC and Vietnam, normal value shall be determined in accordance with paragraphs
1 to 6 of the said Article for those exporting producers which were found to meet the criteria laid
down in Article 2(7)(c) of the basic Regulation,
i.e. where it is demonstrated by such exporting
producers that market economy conditions prevail in respect of the manufacture and sale of the like
product. Briefly, and for ease of reference only, these criteria are set out in a summarised form below:

1. business decisions and costs are made in response to market conditions, and without significant

State interference;

2. accounting records are independently audited, in line with international accounting standards (IAS)

and applied for all purposes;

3. there are no significant distortions carried over from the former non-market economy system;

4.

legal certainty and stability is provided by bankruptcy and property laws;

5. currency exchanges are carried out at the market rate.

(67) All the Chinese and the Vietnamese producers selected in the samples requested MET pursuant to
Article 2(7)(b) of the basic Regulation and replied to the MET claim form for exporting producers
within the given deadlines. However, one Chinese producer did not submit a questionnaire reply
subsequent to having had its request for MET examined. In these circumstances, it is necessary to
establish a dumping margin for this producer on the basis of facts available. Consequently, its request
for MET is null and void and only 12 MET claims of the remaining sampled Chinese exporting
producers have been further analysed by the Commission.

(68)

For those companies selected in the samples,
necessary and verified all
companies in question.

information submitted in the MET claim at

the Commission sought all

information deemed
the
the premises of

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4.1.1. MET determination regarding exporting producers in the PRC

(69)

The following table summarises situation of each company against each of the five criteria as set out
in Article 2(7)(c) of the basic Regulation.

Company

Company 1

Company 2

Company 3

Company 4

Company 5

Company 6

Company 7

Company 8

Company 9

Company 10

Company 11

Company 12

no

no

no

no

no

no

no

no

no

no

no

no

1

2

3

4

5

Business
decisions

Accounting

Assets and
‘carry over’

Legal
environment

Currency
exchange

no

yes

yes

no

yes

no

no

no

no

no

yes

no

no

no

yes

no

yes

no

no

no

no

no

yes

no

yes

yes

yes

no

yes

no

no

yes

yes

yes

yes

no

yes

yes

yes

no

yes

no

no

yes

yes

yes

yes

no

Source: Verified questionnaire replies of cooperating Chinese exporters.

Conclusion

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

(70)

The companies concerned were given an opportunity to comment on the above findings. All 12
companies disagreed with the findings and claimed that they should be granted MET.

(71)

Firstly, it is noted that four sampled Chinese exporting producers did not meet any of the five criteria
required to qualify for MET. This was due to the fact that the information they had provided was
substantially incomplete and therefore no conclusions could be drawn as to whether they fulfilled the
relevant criteria. Consequently, these criteria are deemed not to be met.

(72)

Secondly, it is recalled that it is the Commission's consistent practice to examine whether a group of
related companies, as a whole, fulfils the conditions for MET. Therefore, in cases where a subsidiary
or any other company related to the applicant in the PRC is a producer and/or a seller of the product
concerned, all such related companies have to provide a MET claim form. Consequently, failure in
that respect by all of the four sampled exporting producers mentioned in recital 71 lead to the result
that it could not be established that these groups, as a whole, fulfil all the conditions for MET.

(73) As far as the firs criterion is concerned (Business decisions made in response to market signals,
without significant State interference, and costs reflect market values), it was concluded that all 12
Chinese sampled exporting producers did not demonstrate that they fulfil this criterion. In particular,
the reasons for not meeting the first criterion included the existence of sales restrictions set out in the
Articles of Association and/or business licences or,
in one case, de facto sales restrictions, of the
sampled companies, which are due to State interference. The sampled companies argued upon
disclosure that such restrictions are irrelevant, because these allegedly are outdated and are merely
non-binding company internal rules. However, such documents set out the basis,
inter alia, upon
which a company trades its goods. In fact, and to the contrary, the Chinese administration only
authorises a company to operate on the basis of its Articles of Association and its business licence,
which constitute the specific legal framework for a given company.

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(74) As far as the second criterion is concerned (Firms have a clear set of accounting records, indepen-
dently audited in line with international accounting standards and are applied for all purposes), seven
companies failed to demonstrate that they fulfil the condition set in Article 2(7)(c) of the basic
Regulation. As a matter of fact, accounts were characterised by significant flaws in those cases. For
instance, for one exporter, the audited balance sheets did not reflect the fair and true value of assets
and liabilities at all times because they were not booked at the moment they incurred (at the time of
purchase) but when payments were made. Such infringement of a fundamental
international
accounting standard (IAS), notably the accrual principle, was however not commented on by the
auditors. Consequently, the accounting records were not audited in line with international accounting
In another case, accounting records were unclear because important vouchers were
standards.
incomplete. This, again, was not mentioned by the auditors. Upon disclosure no convincing expla-
nation for such failures has been provided. In addition, two sampled exporting producers did not
follow their auditors' recommendations concerning the accounting of accruals, land-rents, provisions
for bad debts, the devaluation of fixed assets and stocks in the financial years following the audit so
as to keep clear accounts.

(75) Nine companies have not demonstrated that they fulfil the third criterion (Production costs and
financial situation are not subject to distortions carried over from the non-market economy system).
In the cases at stake, it was notably found that land-use rights or machinery had not been passed on
at market conditions to the exporters concerned, a fact that indeed caused distortions of costs and
financial situations carried over from the non market economy system. Upon disclosure some of the
sampled Chinese exporting producers contested these findings. However, they did not properly
substantiate their allegations that they obtained those assets at market conditions.

(76) As regards the fourth criterion (The firms concerned are subject to bankruptcy and property laws
in regard to the four
in the absence of such

which guarantee legal certainty and stability for the operation of firms),
producers that failed to provide sufficient information,
it was concluded,
information, that they did not demonstrate that they meet this criterion.

(77)

Finally, the same four companies, given their failure to provide sufficient information, also failed to
demonstrate that they meet the fifth criterion (Exchange rate conversions are carried out at market
rates).

4.1.2. MET determination regarding exporting producers in Vietnam

(78)

The following table summarises the determination for each company against each of the five criteria
as set out in Article 2(7)(c) of the basic Regulation.

Company

Company 1

Company 2

Company 3

Company 4

Company 5

Company 6

Company 7

Company 8

1

2

3

4

5

Business
decisions

Accounting

Assets and
‘carry over’

Legal
environment

Currency
exchange

no

no

no

no

no

no

yes

yes

no

no

no

no

yes

no

no

no

no

no

no

no

no

no

no

no

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

Conclusion

no MET

no MET

no MET

no MET

no MET

no MET

no MET

no MET

Source: Verified questionnaire replies of cooperating Vietnamese exporters.

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(79)

The companies concerned were given an opportunity to comment on the above findings. All eight
companies disagreed with the determinations made and claimed that they should be granted MET.

(80)

Regarding the first criterion, six companies failed to demonstrate that their business decisions were
made in response to market signals and without significant State interference.

(81)

them operate under the obligation to export either all or a significant part of

Four of
their
production. The companies concerned claimed that they were allowed to sell on their domestic
market. However, their submissions failed to give any relevant counter arguments. The companies
merely argued that they are free to ask for a modification of their investment licence if they want to
sell on their domestic market and/or that quantitative sales restrictions 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 licence but did not request any modifications during the IP 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.

(82) As regards the two remaining companies, they 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 claim. Their
claims were therefore rejected.

(83) As far as the second criterion is concerned, seven companies failed to fulfil the condition set in

Article 2(7)(c) of the basic Regulation.

(84)

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 intended 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
‘the objective of
the financial position, performance and
financial statements is to provide information about
changes in financial position of an entity that
to a wide range of users in making
economic decisions’. In addition, IAS1 states that 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.

financial statements’ that

is useful

(85)

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.

(86)

The seven exporting producers concerned contested the conclusions. However,
in view of (i) the
absence of audited accounts for three of them, (ii) the substantial problems raised by the auditors
themselves in their report for two others, and (iii) 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 submissions made by these seven
companies did not contain any new elements that would permit
the Commission services to
revise their conclusions. The claims were therefore rejected.

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(87) As far as the third 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 autho-
rities, 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 the 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
therefore rejected.

(88)

The fourth and fifth criteria were found to be met by each of the eight companies.

(89)

It is also recalled that it is the Commission's consistent practice to examine whether a group of
related companies as a whole fulfils the conditions for MES and, therefore, in cases where a subsidiary
or any other company related to the applicant in Vietnam is a producer and/or a seller of the product
concerned, the company is invited separately to complete a MES claim form. In that respect, two
companies did not provide an MES claim form for one of their related producers in Vietnam, so that
it could not be established that the group as a whole fulfils all the conditions for MES.

(90)

It was consequently concluded that none of the companies fulfil all the conditions set out in Article
2(7)(c) of the basic Regulation.

4.2. Individual treatment (IT)

(91)

Pursuant to Article 2(7)(a) of the basic Regulation, a country-wide duty, if any, is established for
countries falling under that Article, except in those cases where companies are able to demonstrate
that they meet all criteria set out in Article 9(5) of the basic Regulation.

(92) As far as the PRC is concerned, the exporting producers who requested MET also claimed IT in the

event that they would not be granted MET.

(93) On the basis of the information available, it was found that these companies failed to demonstrate
that they cumulatively meet all the requirements for IT as set forth in Article 9(5) of the basic
Regulation.

(94)

In particular, it was established that since no producer demonstrated that it met the first criterion
under the analysis of MET above because of de jure or de facto requirements to export all or a
significant part of production, the producers' export quantities, and conditions and terms of sale
were not freely determined, but rather on the basis of the administrative authorisation process fixed
by articles of association and/or business licences of the sampled Chinese exporting producers.
Consequently, all sampled Chinese exporting producers failed to demonstrate that they meet the
requirements set out in Article 9(5)(b) of the basic Regulation, which requires de jure and de facto free
determination of export sales. Furthermore, the four companies not meeting the fifth criterion under
the MET analysis were deemed not to meet the criterion set out in Article 9(5)(d) of the basic
Regulation, i.e. exchange rate conversions at market rates.

(95) 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.

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(96) On the basis of the information available, it was found that these companies did not meet all the

requirements for IT as set forth in Article 9(5) of the basic Regulation.

(97)

In particular, it was established, as set out under the analysis of MET above, that for four companies,
the export sales quantities were not freely determined by the company, but were fixed in the
company's business licence. 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 found that they are linked to a third company which did not
fulfil the requirements for IT as set forth in Article 9(5) of the basic 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 three related
companies, IT could not be granted to the former two companies.

4.3. Normal value

4.3.1. Analogue country

(98) According to Article 2(7) of the basic Regulation,

in case of imports from non-market-economy
countries and to the extent that MET could not be granted, for countries specified in Article 2(7)(b) of
the basic Regulation, normal value has to be established on the basis of the price or constructed value
in an analogue country.

(99)

In the notice of initiation the Commission indicated its intention to use Brazil as an appropriate
analogue country for the purpose of establishing normal value for the PRC and Vietnam and invited
the interested parties to comment thereon.

(100) Comments were received from the cooperating exporting producers suggesting Thailand, India or
Indonesia as being a more suitable analogue country than Brazil. The main arguments claimed
against Brazil were that Brazil does not possess similarities to PRC and Vietnam in terms of
socio-economic and cultural developments, or per capita GNP, that Brazil hardly produces STAF
and that it also differs from China and Vietnam in terms of labour cost and conditions of access to
raw material.

(101) Some of the interested parties suggesting analogue countries other than Brazil argued that in a
previous investigation concerning imports of certain footwear with uppers of leather or plastics
originating in the PRC, Indonesia and Thailand (4), Indonesia was chosen as analogue country and
that, consequently, it should also be chosen for this investigation.

(102) The Commission sought cooperation from exporters in Brazil and in other potential analogue
countries such as India, Indonesia and Thailand. Letters were sent to more than 50 companies in
Brazil as well as in India and more than 20 companies in Indonesia. In addition, the Commission
services contacted the Thai Footwear Association and obtained cooperation from six Thai exporting
producers. Out of all the companies which were contacted in the other countries, one Indian
exporting producer, two Indonesian exporting producers and eight Brazilian exporting producers
agreed to cooperate in the investigation.

(4) See footnote 3.

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Representative domestic sales

(103) 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 countries concerned by the proceeding. Therefore, pursuant
to Article 2(2) of the basic Regulation which is also applied to the analogue country, the domestic
prices of the analogue country will normally be considered representative if their volume is at least
5 % of the quantities exported to the EU by the non-market economy country.

(104) As regards Indonesia, it should be noted that the two cooperating Indonesian exporting producers
reported domestic sales which were not sufficiently representative as compared to the exports
originating in the countries concerned.

(105) Regarding India, only one cooperating exporter came forward.

Its domestic sales represented,
however, less than 5 % of the Vietnamese exports and were therefore not sufficiently representative
with regard to the total exports from the countries concerned.

(106) As regards Thailand, six exporting producers came forward and cooperated by replying to the
questionnaire. They did not have domestic sales representing 5 % or more of PRC or Vietnamese
exports and were therefore not sufficiently representative with regard to the total exports from the
countries concerned. Consequently, Thailand was not found to be an appropriate analogue country.

(107)

In contrast, the three main Brazilian exporting producers amongst the eight which cooperated,
reported domestic sales which represented respectively more than 50 % of their own exports and
their aggregate domestic sales were also found to account for 5 % or more in comparison with
exports from the two countries concerned.

(108) On the basis of the above, Brazil appeared to be the most reasonable choice in view of the
the normal value and

representative domestic sales which permitted to avoid construction of
possible numerous adjustments.

Competition in the reference country

(109)

In terms of competition, the choice of Brazil as analogue country appeared also to be reasonable
since it has more than 7 000 producers, with a total production of more than 700 million pairs of
shoes in 2004 and a domestic consumption of more than 500 million pairs in 2004. Exports
represented around 200 million pairs of shoes in 2004 amongst which more than 50 % for
footwear with uppers of
leather. Brazil mainly exports to North America (United States and
Canada), South America and Europe. Imports accounted for around nine million pairs of shoes in
2004 amongst which around 80 % originating in the countries concerned.

(110) Based on 2003 figures, Brazil was also found to have the highest domestic consumption of shoes per
capita (2,7) before Thailand (2,3), Indonesia (1,7) and India (0,6) (all types of shoes included).

Special technology athletic footwear

(111) As regards the fact that Brazil hardly produces STAF, this argument was deemed irrelevant in view
of the decision to exclude this type of shoes from the scope of the investigation as explained in
recital 19.

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Socio-economic and cultural developments

(112) Some parties claimed that Brazil

is too different from the PRC and Vietnam in terms of socio-

economic and cultural developments, or per capita GNP.

(113)

It should first be noted that differences in terms of cultural development are considered irrelevant for
the choice of an analogue country, because an analogue country is taken to reflect market economy
conditions and not comparable cultural development levels.

(114) As regards the choice of a country with different economic development, it should be mentioned
that, by definition, a non-market-economy country or an economy in transition does not have the
same economic characteristics as a market-economy country. It is not unusual that such difference in
economic development exists between an analogue country and a non-market-economy country or
an economy in transition. This, however, does not prevent Brazil being chosen as analogue country
as long as it is deemed more appropriate with regards to the other factors taken into consideration.

(115) The same conclusion can be drawn with regard to the difference in income per capita which is also
an indicator of economic development. In addition,
it should be noted that, on the basis of the
World Bank's main criteria for classifying economies is gross national income per capita, Brazil is
classified in the same category as the PRC, Thailand and Indonesia.

Labour costs

(116) Several interested parties stressed the fact that labour costs are higher in Brazil than in Vietnam and
China and that India, Indonesia or Thailand whose labour costs are more comparable would be more
appropriate analogue countries.

(117)

In this respect, it should be pointed out that the choice of the analogue country is not necessarily
made among countries which have the same or the closest costs as the countries concerned, since
precisely these latter costs are deemed biased by the fact that the countries concerned have no market
economy or their economy is in transition. As mentioned in recital 114, a country with a different
level of economic development may be chosen as analogue country for a non-market-economy
labour costs which reflect the state of economic
country or an economy in transition. Similarly,
development of a country are not, in isolation, considered as a relevant criterion.

(118) None the less, as mentioned above, the level of cooperation from the Indian, the Thai and the
Indonesian exporting producers was not such as to provide a sufficient representative sample of their
domestic sales. Taking one of them as the reference country would lead to unnecessary use of
constructed normal value and numerous adjustments.

Difference in the costs of production structures

(119)

Interested parties also claimed that the cost structure between Brazil and the countries concerned is
different since some costs (Research & Development
(R & D), design, etc.) supported by the
customers of the Chinese and Vietnamese exporters are incurred by the Brazilian producers and
therefore included in their cost of production.

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(120)

in some cases, exporters in the countries concerned sold the product
It was indeed found that,
concerned to former Community manufacturers in the Community which still support the above-
mentioned components of the cost of production and sell the product under their own brand name.
However, this is not a reason to reject Brazil as a suitable analogue country as adjustments can be
made for such costs when establishing normal value.

(121) A difference in access to raw material, in particular leather, between Brazil on the one hand and the
PRC and Vietnam on the other, was also claimed by interested parties. However, the allegations were
found to be contradictory and did not provide any substantive evidence as to why other countries
would be more appropriate. For example, some interested parties argued that there is unlimited
availability of raw materials in the countries concerned, while only the basic raw materials would
be available in Brazil. Other interested parties claimed, on the contrary, that the countries concerned
have to import cow leather and do not have the same access to raw materials as Brazil which has
large and well established production of raw leather.

(122) Some parties however confirmed that Brazil has a larger access to leather than the countries
concerned. In particular, Brazil has one of the largest commercial bovine herds of the world as
well as hundreds of companies specialized in tanning and leather finishing. The Brazilian tanning
industry produces, annually, more than 30 million hides, of which only 40 % is absorbed by the
Brazilian leather consuming market (footwear, leather articles, furniture). Such know-how in terms of
processing and availability of raw material can only have a downward effect on the Brazilian cost of
production. Therefore, the allegation that Brazil would not be a reasonable choice on the basis of the
access to raw material was rejected.

(123) Those same parties then claimed that the countries concerned use leather of lower quality than that
used by the Brazilian producers. In that respect, it should be noted that the investigation of the
Chinese and Vietnamese exporting producers, forming part of the samples, showed that the quality of
the leather used by them was higher than that used by Brazilian producers. However, this is not a
reason to reject Brazil as a suitable analogue country as an adjustment for a difference in physical
characteristics can be made to take into account any difference in the quality of the leather.

(124)

In light of the above, it was concluded that Brazil is an appropriate analogue country.

4.3.2. Determination of normal value in the analogue country

(125) Following the choice of Brazil as an analogue country, normal value was calculated on the basis of

the data verified at the premises of the three main cooperating Brazilian producers.

(126) The domestic sales of the three Brazilian producers of the like product were found to be represen-
tative compared to the product concerned exported to the Community by the exporting producers in
the PRC and in Vietnam.

(127) An examination was also made as to whether the domestic sales could be regarded as having been
made in the ordinary course of trade, by establishing the proportion of profitable sales to inde-
pendent customers. The verification carried out at the three main producers showed that their sales
volume, sold at a net sales price equal to or above the unit cost, represented more than 80 % of the
total sales volume of each producer. Therefore, normal value was based on the actual domestic price,
calculated as a weighted average of the prices of all domestic sales of that product type made during
the IP, irrespective of whether these sales were profitable or not.

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4.4. Export price

(128) The exporting producers made export sales to the Community either directly to independent

customers or through unrelated trading companies located outside the Community.

(129) Where export sales to the Community were made directly to independent customers, the export
prices were established on the basis of the prices actually paid or payable for the product concerned
in accordance with Article 2(8) of the basic Regulation.

(130) Where export sales to the Community were made through unrelated trading companies, export prices
were established on the basis of the prices of the product when sold for export to the trading
companies i.e. to an unrelated buyer, by the producers concerned in accordance with Article 2(8) of
the basic Regulation.

4.5. Comparison

(131) The comparison between normal value and export price was made on an ex-factory basis.

(132) For the purpose of ensuring a fair comparison between the normal value and the export price, due
allowance in the form of adjustments was made for differences affecting prices and price compar-
ability in accordance with Article 2(10) of the basic Regulation. For all
investigated exporting
in transport costs, ocean freight and insurance costs,
producers, allowances
handling, loading and ancillary costs, packing costs, credit costs, warranty and guarantee costs and
commissions have been granted where applicable and justified. An adjustment was also made
pursuant to Article 2(10)(a) of the basic Regulation to allow for the quality of the leather and
Article 2(10)(k) of the basic Regulation for R & D and design costs.

for differences

(133) For exported product types not sold on the domestic market of Brazil, the domestic sales prices of
types were used in establishing normal values, appropriately adjusted where

similar product
warranted.

4.6. Dumping margins

4.6.1. General methodology

(134) Pursuant to Article 2(11) and (12) of the basic Regulation, dumping margins were established on the
basis of a comparison of a weighted average normal value by product type with a weighted average
export price by product type as established above. Given that none of the exporting producers in the
samples fulfilled either the MET criteria nor the IT criteria, one weighted average dumping margin has
been calculated for all companies in the sample of exporters in the PRC, and another one for the
companies in the sample of exporters in Vietnam.

(135) The dumping margin for cooperating exporting producers, who made themselves known within the
time limits set in the notice of initiation, but were neither part of the samples nor examined
individually, has been established on the basis of the weighted average of the dumping margins of
the companies in the sample pursuant to Article 9(6) of the basic Regulation.

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(136) For those exporting producers which neither replied to the Commission's questionnaire nor otherwise
made themselves known, the dumping margin was established on the basis of the facts available, in
accordance with Article 18(1) of the basic Regulation.

(137)

In order to determine the dumping margin for non-cooperating exporting producers, the level of
non-cooperation was first established. To this end, the volume of exports to the Community reported
by the cooperating exporting producers was compared with the equivalent Eurostat import statistics.

(138) Where the level of cooperation was low, i.e. less than 80 % of total exports of the product concerned
being accounted for by the cooperating exporters, it was considered appropriate to set the dumping
margin for the non-cooperating exporting producers at a level higher than the highest dumping
margin established for the cooperating exporting producers. In such cases, the dumping margin was
therefore established at a level which corresponds to the weighted average dumping margin of the
most sold product types of the cooperating exporting producers with the highest dumping margins.

(139) Where the level of cooperation was high, i.e. 80 % or more of total exports of the product concerned
being accounted for by the cooperating exporters, it was considered appropriate to set the dumping
margin for any non-cooperating exporting producers at the level of the weighted average dumping
margin established for cooperating exporting producers in the country concerned.

(140)

It has been the consistent practice of the Commission to consider related exporting producers or
exporting producers belonging to the same group as one single entity for the determination of a
dumping margin and thus establish one single dumping margin for them. Calculating individual
dumping margins might encourage circumvention of anti-dumping measures, thus rendering them
ineffective, by enabling related exporting producers to channel their exports to the Community
through the company with the lowest individual dumping margin.

(141)

In accordance with this practice it was found that three unrelated exporting producers in Vietnam
were individually related to three other exporting producers. For these exporting producers, it was
decided to first calculate a dumping margin for each of the six companies. A weighted average
dumping margin was then established for each of the three groups of related companies based on the
dumping margin for the two companies in each group.

(142) The comparison of the data concerning exports to the Community provided by the exporting
producers in each exporting country and the total volume of
imports originating in each
exporting country indicated that the level of cooperation was high, since these exports represented
more than 90 % of total Community imports from each exporting country during the IP.

(143) Therefore, the country-wide average dumping margin of each exporting country was determined on
the basis of the weighted average dumping margin of those cooperating exporting producers included
in the sample and whose information regarding export prices could be considered reliable. It should
be noted that export price data from four of the sampled Chinese exporting producers could not be
used, because they submitted unreliable transaction listings, which, for instance, included non-product
concerned or did not match with source documentation. Therefore, country-wide dumping margins,
expressed as a percentage of the cif Community frontier price duty unpaid, were attributed to all
other exporting producers in the respective export country. Given that, as explained in recital 134,
one dumping margin has been established for the sampled exporters in the PRC and one for those in
Vietnam, these dumping margins should also be attributed to all other exporting producers in the
countries concerned.

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4.6.2. Dumping margins

(a) People's Republic of China

The provisional country-wide dumping margin, expressed as a percentage of the cif import price at
the Community border is 21,4 %.

(b) Vietnam

The provisional country-wide dumping margin, expressed as a percentage of the CIF import price at
the Community border is 64,0 %.

5. INJURY

5.1. General

(144)

In view of the above provisional conclusions concerning the product scope, it should be noted that
all figures related to STAF have been excluded from the data analysed below.

(145) A full provisional analysis of injury had been made for the product concerned, including children'
shoes. However, as a provisional finding of material injury must be made for imports on which
provisional measures are imposed, the following detailed analysis refers to imports excluding chil-
dren's shoes, as it is provisionally envisaged to exclude the latter from the application of the measures
on grounds of Community interest. This is considered necessary as the analysis is linked to measures
which must be based on the injury elimination levels, which are different when children's shoes are
excluded. It should be noted, however, that that the exclusion of children's shoes does not affect the
overall provisional conclusions on injury. Indeed the trend of all the relevant injury factors, whether
or not children's shoes are covered by measures, remains similar.

5.2. Community production

(146) Within the Community, the product concerned is manufactured by more than 8 000 producers.
Around 80 % of the Community production is concentrated in Italy, Portugal and Spain. Footwear is
also manufactured, although to a lesser extent, in almost all other Member States.

(147) Certain parties claimed that even though they do not manufacture the product concerned in the
Community, they should still be considered as Community producers since they maintain design,
brand, R & D, management and retail activities in the Community.

(148) The established practice in that respect is that only the companies active in the production in the
Community may qualify for being a Community producer. In the case of the traditional Community
producers all development, design and manufacturing activities take place in the Community. Other
Community producers may purchase part of the footwear, usually the uppers, from non-Community
sources, but the production of the footwear itself remains in the Community and the final product
still qualifies for EC origin, as the major value added operations take place in the Community. This
was also not contested by any interested party. The situation of the operators referred to in the
preceding recital is different in the sense that even though part of the design and development takes
place in the Community, the manufacturing operations, and the development of the products at
factory level, are not carried out in the Community. The emanating products do not qualify for EC
origin, and those operators in the Community can therefore not be considered Community
producers. This claim was therefore rejected.

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(149)

It was concluded that the producers mentioned in recital 146 constitute the total Community
production within the meaning of Article 4(1) of the basic Regulation.

5.3. Definition of the Community industry

(150) The complaint was lodged by and/or on behalf of Community producers representing a total of 814
the total

companies. Those complainants were found to account
Community production of the product concerned, i.e. in this case around 42 %.

for a major proportion of

(151) For the purpose of the injury analysis, and in view of this significant number of complaining
Community producers, the provisions of the Article 17 of the basic Regulation had to be applied.
A sample of 10 producers was selected accordingly. These 10 companies, representing slightly more
than 10 % of the production of the complaining Community producers, fully cooperated in the
investigation.

(152) On the basis of the above, it is considered that the 814 complainant Community producers, i.e. those
sampled and the other non-sampled Community producers, are deemed to constitute the Community
industry within the meaning of Article 4(1) and Article 5(4) of the basic Regulation. They will
hereinafter be referred to as the ‘Community industry’.

5.4. Community consumption

(153) The Community consumption was established on the basis of the following information:

— the production volume of the overall Community producers,

— the exports made by the Community producers,

— the overall Community import volume.

(154) On this basis, the Community consumption developed as follows:

2001

2002

2003

2004

IP

Consumption (000 pairs)

586 280

530 130

550 028

577 573

591 053

Index: 2001 = 100

100

90

94

99

101

Source: Eurostat, information contained in the complaint.

(155) The footwear consumption in the Community first declined by 10 % in 2002, but then increased
thereafter. Overall, the Community consumption increased by 1 %. The consumption of footwear per
capita in the Community remained relatively stable during the period considered.

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5.5. Imports from the countries concerned

5.5.1. Cumulative assessment of the effects of the dumped imports concerned

(156) The Commission considered whether the effects of dumped imports from the countries concerned
should be assessed cumulatively, on the basis of the criteria set out in Article 3(4) of the basic
Regulation. This Article provides that the effects of imports from two or more countries simulta-
neously subject to anti-dumping investigations shall be assessed cumulatively only if it is determined
that (a) the margin of dumping established in relation to the imports from each country is more than
de minimis as defined in Article 9(3) of the basic Regulation and that the volume of imports of each
country is not negligible and (b) a cumulative assessment of the effects of the imports is appropriate
in the light of the conditions of competition between imported products and the conditions of
competition between the imported products and the like Community product.

(157)

In this respect, it was firstly found that the dumping margins established for each of the countries
concerned were more than de minimis. In addition, the volume of the dumped imports from each of
those countries was not negligible in the sense of Article 5(7) of the basic Regulation. Indeed, the
import volume represented for PRC and Vietnam respectively around 9 and 14 % of the Community
consumption during the IP.

their origin,

irrespective of

footwear with uppers of

(158) The investigation further showed that the conditions of competition both between the dumped
imports and between the dumped imports and the like Community product were similar. It was
leather produced/sold by the
found that,
countries concerned and those produced/sold by the Community industry compete against each
other since they are alike in terms of their basic characteristics, interchangeable from the consumer's
point of view and distributed via the same distribution channels.
In addition, the investigation
imports developed in parallel: both countries
revealed that
increased their imports by around 40 million pairs between 2001 and the IP. The import prices
of those two countries also followed a similar decreasing trend, falling by 39 % for PRC and by 22 %
for Vietnam. In addition those prices were found to undercut the Community industry's prices at a
comparable level of trade.

for both countries,

the volume of

(159) Certain interested parties claimed that the conditions for cumulative assessment were not fulfilled in
this case because the market shares of the countries concerned developed differently and their price
level was not comparable.

(160) The table below, however, shows that the import volumes, market shares and average unit prices of

both countries developed similarly over the period considered:

Import volume and market shares

2001

2002

2003

2004

IP

PRC (000 pairs)

12 772

11 942

21 340

26 763

53 470

Index: 2001 = 100

Market share

100

2,2 %

94

2,3 %

167

3,9 %

210

4,6 %

419

9,0 %

Vietnam (000 pairs)

41 241

47 542

64 666

81 042

81 477

Index: 2001 = 100

Market share

100

7,0 %

115

9,0 %

157

197

198

11,8 %

14,0 %

13,8 %

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PRC EUR/pair

Index: 2001 = 100

Vietnam EUR/pair

Index: 2001 = 100

Average prices

2001

12,4

100

12,5

100

2002

12,2

98

11,8

95

2003

9,1

74

10,5

84

2004

7,5

61

9,8

79

IP

7,5

61

9,7

78

(161)

It is pointed that the sudden increase of Chinese imports during the IP, which significantly overlaps
with 2004, is more than likely related to the suppression of the quota as of January 2005. It is
however noted that it is an established practice to examine the trends of import volume and prices of
the countries concerned over a number of years, in this case from 1 January 2001 to the end of the
IP. In this context, the Chinese and Vietnamese imports clearly followed the same trends. In addition,
the absolute difference in the level of the prices between the two countries is not relevant in the
context of the cumulative assessment. It may indeed be explained by various factors, e.g. a different
product mix. It is the price trends over the period considered that are relevant and they are in fact
comparable for the two countries. For those reasons the claim could not be accepted.

(162) On this basis, it is concluded that all conditions of cumulation are met and that accordingly the effect
of the dumped imports originating in the countries concerned should be assessed jointly for the
purpose of the injury analysis.

5.5.2. Volume and market share of the dumped imports concerned

Imports (000 pairs)

54 013

59 484

86 006

107 805

134 947

2001

2002

2003

2004

IP

Index: 2001 = 100

Market share

Source: Eurostat.

100

9,2 %

110

159

200

250

11,2 %

15,6 %

18,7 %

22,8 %

(163) The above table indicates that the imports into the Community of the product concerned, originating

in the countries concerned, more than doubled during the period considered.

(164) The market share of

the countries concerned hugely expanded during the period considered,
increasing from 9,2 % in 2001 to 22,8 % during the IP. This has to be seen against the background
of the relatively stable Community consumption.

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(165)

It was claimed by certain interested parties that the development of the import volume of the
countries concerned was distorted due to the effect of the lifting of the import quotas as of
1 January 2005. This is allegedly due to the fact that, in 2004, certain companies postponed to
early 2005 their exports which would normally have been done at the end of 2004. In this respect,
even though the end of the quota system may indeed have had an impact on the import volume
during the first quarter of 2005, it should firstly be noted that this only concerns one of the two
countries concerned and not all the products covered by this investigation. In addition, the devel-
opment of imports during the overall period considered shows a constantly increasing trend. It is
therefore considered that the impact of the lifting of the quota did not have a significant distorting
impact and certainly does not alter the conclusion that the dumped imports significantly increased
between 2001 and the end of the IP.

5.5.3. Price evolution of the dumped imports

EUR/pair

Index: 2001 = 100

Source: Eurostat.

2001

12,4

100

2002

11,9

96

2003

10,2

82

2004

9,2

74

IP

8,9

71

(166)

Import prices decreased dramatically from EUR 12,4 per pair in 2001 to EUR 8,9 per pair during the
investigation period. This represents an overall decrease of almost 30 % during the period considered.

5.5.4. Undercutting

(167) For the purpose of analysing price undercutting,

the import prices of

the sampled exporting
producers were compared to the Community industry prices, on the basis of weighted averages
for comparable product types during the IP. The Community industry prices were adjusted to an
ex-works level, and compared to cif Community frontier import prices, plus customs duties. This
price comparison was made for transactions at the same level of trade, duly adjusted where necessary,
and after deduction of rebates and discounts. In order to make a fair comparison, adjustments were
made in order to reflect costs that are incurred in the Community by the importers, such as design,
selection of raw material etc., and which otherwise would not be reflected in the import price.
Indeed, since footwear is produced on order, thus on the basis of the specifications (raw material,
design, etc.) given by the importers themselves, those costs should be also reflected in the prices of
the imported footwear so as to allow a fair comparison with the Community industry prices that also
comprise those elements.

(168) On the basis of the cooperating exporting producers' prices, the undercutting margins found, by
country, and expressed as a percentage of the Community industry's prices, are as follows:

Country

Price undercutting

PRC

Vietnam

12,8 %

11,3 %

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5.6. Peculiarities of the footwear sector in the Community

(169) The footwear sector in the Community is characterised by networks of micro (employing less than
10 persons) and small enterprises. Big companies of more than 500 employees employ only a limited
portion of the overall workforce in the sector. Micro and small enterprises have the advantage to be
more flexible and adaptable to changes in market demand, but on the other hand they are financially
more vulnerable to external shocks.

(170) Under the pressure of international competition, larger companies have tended to disappear, while
the more flexible small and micro companies, organised in small groups, are more able to maintain
their competitive position. The number of enterprises in the sector gradually decreased in recent
years, and therefore only the ‘survivors’ could participate in the anti-dumping complaint. Also it is
likely that many ‘micro’ companies did not have sufficient resources to support the anti-dumping
complaint. For those reasons, it is considered that analysing the situation of only those complaining
the injury as far as the overall Community
survivors, could possibly understate the level of
production of the product under investigation is concerned.

(171)

In the table below are presented certain macro indicators provided by the national federations of
those Member States having complaining Community producers, i.e. Italy, Spain, Portugal, France,
Poland and Greece. They concern the evolution of the production, employment and number of
companies active in the production of the product concerned during the period under investigation.
These data have been verified to the fullest possible extent.

2001

2002

2003

2004

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

Number of companies

10 728

10 684

10 447

10 044

Index 2001 = 100

100

100

97

94

82

9 579

89

(172) Production of footwear with uppers of leather in the abovementioned Member States declined by
35 % during the period considered. During the same period, more than 1 000 companies were forced
to close down. This represented more then 43 000 job losses, a decrease of 20 % of employment in
2001. The decline of the number of companies was especially marked during the IP, a period which,
it is recalled, significantly overlaps with the year 2004. This indicates an acceleration of bankruptcies
during the first quarter of 2005.

(173) The above figures clearly demonstrate that the sector has been facing serious negative development in

the last year, and is currently in a critical situation.

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5.7. Situation of the Community industry

5.7.1. Preliminary remarks

(174) Pursuant to Article 3(5) of the basic Regulation, the Commission examined all economic factors and
indices having a bearing on the state of the Community industry. It is however pointed to the fact
that not all factors listed in the basic Regulation were found to have a bearing on the state of the
Community footwear industry for the determination of injury. For example, because production takes
place on order, stocks are normally either not held or only consist of completed orders not yet
delivered/invoiced and were therefore found to have very little meaning in the injury analysis.
Similarly, since the sector remains relatively labour intensive, the production capacity is not tech-
nically limited and will mainly depend on the number of workers hired by the producers.

(175) As explained above,

the
provisions on sampling had to be used. For the purpose of the injury analysis, the injury indicators
have been established at the following two levels:

the large number of complainant Community producers,

in view of

— the macroeconomic elements (production, sales volume, market share, employment, productivity,
growth, magnitude of dumping margins and recovery from the effects of past dumping) were
assessed at the level of the entire Community industry, on the basis of the information collected
from the individual producers at the complaint stage. These factors were cross-checked, where
possible, with the overall
information provided by the relevant associations throughout the
Community,

— the analysis of microeconomic elements (stocks, sales prices, cash flow, profitability, return on
investments, ability to raise capital, investments, employment and wages) was carried out for the
individual companies, i.e. at the level of those Community producers that were included in the
sample.

5.7.2. Macro-economic indictors

Production, production capacity and capacity utilisation

2001

2002

2003

2004

IP

Production (000 pairs)

223 047

182 576

172 339

158 213

146 868

Index: 2001 = 100

100

82

77

71

66

Source: Information collected at the complaint stage.

(176) The production volume of the overall Community industry went down from 223 million pairs in
2001 to 146,9 million pairs during the investigation period. This represents a decrease of more than
30 %.

(177) Although a factory is theoretically designed to achieve a certain production level, this level will
Indeed, as explained above,
strongly depend on the number of workers hired by this factory.
for a
most of the footwear manufacturing process is labour intensive.
stable number of companies, the best way to measure capacity is to examine the level of employment
of those companies. It is therefore referred to the table below showing the Community industry's
employment level. Alternatively, the development of the number of companies active in the sector
also adequately reflects the overall production capacity. This development was examined above and it
is recalled that during the period considered more than 1 000 companies had to close down.

In those circumstances,

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Sales volume and market share

2001

2002

2003

2004

IP

Sales (000 pairs)

158 913

125 665

121 234

111 240

105 749

Index: 2001 = 100

100

79

76

70

67

Market shares

27,1 %

23,7 %

22,0 %

19,3 %

17,9 %

Source: Information collected at the complaint stage.

(178) Because production takes place on order, the sales volume of the Community industry followed a
decreasing trend similar to the production. The number of pairs sold on the Community market
dropped by more than 50 million between 2001 and the IP, i.e. by 33 %.

(179)

In terms of market shares, this corresponds to a loss of more than 9 percentage points. The
Community industry market shares dropped from 27,1 % in 2001 to 17,9 % during the IP.

Employment

2001

2002

2003

2004

IP

Total employees

83 238

69 361

66 425

61 640

57 047

Index: 2001 = 100

100

83

80

74

69

Source: Information collected at the complaint stage.

(180) Employment dramatically decreased during the overall period considered. More than 26 000 jobs
were lost within the Community industry, representing a decrease of 31 % in the IP compared to the
2001 level.

(181) Reference is also made to the above table showing, for the overall leather footwear industry, a sector-
wide decrease in employment of more than 43 000 jobs. The relevance of this figure is emphasised
by the fact that around 700 companies (see above) had to cease their operations in the period 2001
to 2004, i.e. before an anti-dumping complaint was lodged, and could therefore not participate in
this investigation.

Productivity

Productivity

Index 2001 = 100

2001

2 680

100

2002

2 632

98

2003

2 594

97

2004

2 567

96

IP

2 575

96

Source: Information collected at the complaint stage.

(182) Productivity was established by dividing the production volume with the Community industry's
workforce, as reported in the above tables. On this basis, the Community industry's productivity
remained relatively stable during the period considered.

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Growth

(183) Between 2001 and the IP, while Community consumption remained fairly stable, the Community
industry's sales volume significantly decreased by around 30 %.
the
Community industry faced a drop in market share of around nine percentage points. It is noted
that, during the same period, the countries concerned managed to more than double their imports
and gained around 14 percentage points of market share on the Community market.

In those circumstances,

Magnitude of dumping margin

(184) With regard to the impact on the Community industry of the magnitude of the actual margin of
dumping, given the volume and the prices of the imports from the countries concerned, this impact
cannot be considered to be negligible.

Recovery from the effects of past dumping or subsidisation

(185) Anti-dumping measures against

imports of certain footwear with uppers of

leather or plastics
originating in PRC, Indonesia and Thailand were imposed in February 1998. The scope of those
measures overlapped, to a certain extent, the products subject of the present investigation. Further to
the publication of a notice of impending expiry of those measures, no request for a review was
received, and the measures accordingly lapsed in March 2003. In the absence of a review request, it is
considered that the Community industry had, at that time, recovered from the effects of past
dumping.

5.7.3. Micro-economic indicators

Production and sales volume

(186) Although production and sales volume are not, per se, considered micro-economic indicators, the
corresponding figures for the sampled Community producers are nevertheless presented here in order
to show how the situation of the sampled Community producers developed compared to that of the
overall Community industry.

2001

2002

2003

2004

IP

Production (000 pairs)

17 743

18 828

16 507

12 902

12 129

Index: 2001 = 100

100

106

93

73

68

EU sales volume (000 pairs)

15 130

15 877

14 544

13 652

13 422

Index: 2001 = 100

100

105

96

90

89

Source: Verified questionnaire replies.

(187) After seeing an increase in production and sales in 2002 compared to 2001, the production and
sales volume in the Community of those companies included in the sample then developed similarly
to the overall Community industry. During the period considered, the production volume decreased
by more than 30 % and the sales volume by more than 10 %.
It is recalled that the overall
Community industry faced a drop in production (– 34 %) and sales volume (– 33 %) during the
same period.

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Stocks

000 pairs

Index: 2001 = 100

Source: Verified questionnaire replies.

2001

2 118

100

2002

2 375

112

2003

2 544

120

2004

2 705

128

IP

2 470

117

(188) As already mentioned, stocks are deemed to have only a very little bearing on the state of the
Community footwear industry for the determination of injury since production takes place on order.
In theory, stocks are therefore not held and only result from processed orders that have not yet been
delivered and/or invoiced. On that basis, the stock level first increased between 2001 and 2004, i.e.
by 28 %, and then decreased at the end of the IP. This decrease during the IP is also to be seen in the
context of the seasonality of the sector. Indeed, it is expected that the level of stock is higher in
December than at the end of the first quarter of the year, i.e. in this case the end of the IP.

Sales prices

EUR/pair

Index: 2001 = 100

Source: Verified questionnaire replies.

2001

20,9

100

2002

20,5

98

2003

20,0

96

2004

19,8

95

IP

19,4

93

(189) The average unit sales price continuously declined during the period considered. Overall, the decrease
was of 7,2 %. The Community industry price depression may seem limited, especially as compared to
the 30 % dumped import price decrease over the period considered. It should however been seen in
the context that footwear is produced on order, and therefore new orders are normally secured only
if the corresponding price level allows at least for break even. In this respect, reference is made to the
table below showing that, during the IP, the Community industry could not further lower its prices
without incurring losses.

Cash flow, profitability and return on investments

2001

2002

Cash flow (EUR 000)

13 497

10 991

Index: 2001 = 100

Profit on net turnover (%)

Return on investments

100

1,6 %

5,7 %

81

2,1 %

8,0 %

Source: Verified questionnaire replies.

2003

8 147

60

0,1 %

0,4 %

2004

10 754

80

2,3 %

10,0 %

IP

5 706

42

1,1 %

4,8 %

(190) The above return indicators show a clear weakening of the financial situation of the companies
during the period considered. It is noted that restructuring expenses incurred by one of the sampled
Community producers negatively affected the profitability for the year 2003. The overall deterioration
was especially marked during the IP and indicates significant adverse developments during the first
quarter 2005, i.e. the last quarter of the IP.

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(191) The cash flow was especially affected. It declined by almost 60 % between 2001 and the IP. The level
of cash flow is particularly relevant in the case of SMEs, which do not always have easy access to
external funding, unlike bigger companies that can more easily provide bank guarantees. SMEs mostly
have to rely on their own resources to finance their activities. The profitability level in relation to
turnover remained relatively stable at a level of 1,5 % between 2001 and 2004, with the exception of
the year 2003 however, but then dropped to a break-even level during the IP. The return on
investments followed the same trend.

(192) The overall

level of profit remained at a low level during the overall period considered and
emphasises the financial vulnerability of those SMEs, which, by nature, are especially exposed to
external shocks.

Ability to raise capital

(193) The investigation showed that capital requirements of several Community producers have been
adversely affected by their difficult financial situation. This is stressed by the development of their
individual level of profit and especially the deterioration of their cash flow. As explained above, SMEs
are not always in a position to provide sufficient bank guarantees and may have difficulties to face
the significant financial expenses that would result from a precarious financial situation.

Investments

EUR 000

Index: 2001 = 100

Source: Verified questionnaire replies.

2001

8 026

100

2002

10 428

130

2003

6 039

75

2004

4 119

51

IP

3 744

47

(194) The investments consented by the companies decreased by more than 50 % between 2001 and the
IP. The decrease in investments is to be seen in relation with the deterioration of the financial
situation of the Community producers in the sample.

Employment and wages

Total employees

Index: 2001 = 100

Source: Verified questionnaire replies.

2001

4 705

100

2002

4 088

87

2003

3 470

74

2004

2 861

61

IP

2 754

59

2001

2002

2003

2004

IP

Salaries and wages (EUR 000)

66 636

63 955

61 335

50 068

48 485

Index: 2001 = 100

100

96

92

75

73

Average salaries and wages
per person (EUR)

14 163

15 645

17 676

17 500

17 605

Index: 2001 = 100

100

110

125

124

124

Source: Verified questionnaire replies.

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(195) The level of employment of the sampled Community producers significantly deteriorated during the
period under investigation. Around 20 000 jobs were lost during that period. Since footwear is made
on order, any decline of the sales volume will immediately translate in a decrease of production,
which in turn means a decrease of employment in this labour intensive sector.

(196) The increase of the average salaries and wages per person employed results from a significant drop in
the number of workers, with a relatively low wage level, while the level of the administration staff
and management, — with a higher average salary, remained relatively stable. The job losses were
indeed especially marked at production level. Although it also decreased, the level of administrative
staff generally depends less on the level of activity of the companies. The evolution of the average
salaries and wages is also distorted by the fact that sometimes lay-off indemnities had to be paid to
persons no longer included in the headcount of the companies.

5.8. Conclusion on injury

(197) The analysis of the macro-economic indicators, i.e. at the level of the overall Community industry,
revealed that the injury mainly materialised in terms of decrease of sales volume and market share.
Since footwear is manufactured on order, this also had a direct negative impact on the production
level and employment in the Community. During the period considered, the Community industry's
sales volume on the Community market decreased by more than 30 %, market share declined by nine
percentage points, production dropped by 34 % and employment was reduced by 31 %, i.e. a loss of
26 000 jobs.

(198) The cost structure of the footwear industry is such that individual companies are either profitable or
have to go out of business. Indeed, with direct expenses, mainly labour and raw material, repre-
senting up to 80 % of the production cost, footwear is made on order only after a direct costing has
shown a sufficient level of profit for each order.

(199) The analysis of the micro-economic elements revealed that the individual companies in the sample
have reached the lowest possible level of profit during the investigation period. Their level of profit
during the IP was around break-even, and the cash flow followed a dangerous declining trend. The
analysis of the situation of the sampled companies revealed that, during the IP, they were no longer
in the position to further decrease their price levels without incurring losses which, in the case of
SMEs, cannot be sustained for more than a few months without their being forced to close down.

(200)

In this context the information provided by the national federations concerning the number of
company closures is especially relevant. Between 2001 and the investigation period, the federations
reported more than 1 000 closures of companies.

(201)

In the light of the foregoing it is concluded that the Community industry has suffered material injury
within the meaning of Article 3(5) of the basic Regulation.

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6. CAUSATION

6.1. Introduction

(202)

In accordance with Article 3(6) and (7) of the basic Regulation, the Commission examined whether
the material
injury suffered by the Community industry was caused by dumped imports of the
product concerned originating in the countries concerned. Known factors other than the dumped
imports, which could at the same time have injured the Community industry, were also examined in
order to ensure that possible injury caused by these other factors was not attributed to the dumped
imports.

6.2. Effects of the dumped imports

(203) Firstly it should be noted that the investigation revealed that the footwear,

imported from the
countries concerned, competes at all levels, i.e. all ranges and types, with the footwear produced
and sold by the Community industry, and that their sales channels are, overall, identical.

(204) The significant increase in volume of the dumped imports, which more than doubled during the
period considered, coincided with the deterioration of the economic situation of the Community
industry. This deterioration materialised amongst others, by a drop in production and sales volume of
around 30 % during the same period.

(205) The surge of dumped imports came together with a significant price decrease of the corresponding
average price. Effectively, during the period under investigation, the average price of the dumped
imports declined by 30 %.

(206)

In a relatively transparent and very price sensitive market, where footwear is produced on orders, this
had a double negative impact on the situation of the Community industry. Firstly, it resulted in a
depression of the Community industry prices, which decreased by around 8 % during the period
considered. Secondly, and more importantly, the low priced imports from those countries seriously
affected the Community industry's order books, thus causing a negative effect on production, sales
volume and employment.

(207) The development of the Community industry's market share and that of the countries concerned, as

shown below, is clearly illustrated.

Countries concerned

Community industry

2001

9,2 %

27,1 %

2002

11,2 %

23,7 %

2003

15,6 %

22,0 %

2004

18,7 %

19,3 %

IP

22,8 %

17,9 %

(208) While the Community industry lost around nine percentage points of market share between 2001
and the IP, the countries concerned expanded by around 14 percentage points and this, during a
period of relatively stable consumption.

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(209)

In view of the clearly established coincidence in time between, on the one hand, the surge of dumped
imports at continuously decreasing prices and, on the other hand, the Community industry's loss of
sales and production volume, decrease in market share and employment, and price depression, it is
concluded that the dumped imports played a determining role in the injurious situation of the
Community industry.

6.3. Effects of other factors

6.3.1. Performance of other Community producers

2000

2001

2002

2003

IP

Sales volume (000 pairs)

223 471

184 702

166 978

152 201

149 345

Index: 2001 = 100

100

83

75

68

67

Market share

38,1 %

34,8 %

30,4 %

26,4 %

25,3 %

Source: Questionnaire replies, complaint, Eurostat.

(210) The above table shows that the sales of the other Community producers on the Community market
decreased by more than 70 million pairs during the period considered, a drop of more than 30 %.
The corresponding market share has also decreased from 38,1 % in 2000 to 25,3 % during the IP.
Based on the information available, it is therefore concluded that the other Community producers
were in a situation similar to that of the Community industry and did not cause any injury to the
Community industry.

6.3.2. Export performance of the Community industry

(211) Certain interested parties claimed that the poor economic situation of the Community footwear
industry was due to a deterioration of its export performance. This allegation is based on the fact
that in a report issued by the Community footwear industry, it is asserted that market access is a
major problem for the sector in export markets and that a wide range of tariff and non-tariff barriers
are still preventing the Community producers from exploiting their export potential.

(212)

In this context, it should firstly be noted that the injury analysis focuses on the situation of the
Community industry on the Community market. Therefore a deterioration of
the export
performance, if any, does not have any impact on most of the indicators analysed above, such as
sales volume, market share and prices.
In terms of the overall production volume, where the
distinction between Community and outside Community market cannot be made, since footwear
is produced on order, a decrease of sales on the Community market will necessarily translate into a
declining production. Since the vast majority of the production is intended to be sold on the
Community market, and even though export sales also decreased during the period considered, it
is concluded that the major part of the decrease in production is related to injury suffered on the
Community market, and not to decreasing exports. Finally, the assertion made by the Community
producers, in fact, merely refers to prevention of exploitation of their export potential, and should
therefore be seen as the inability to compensate decreasing sales on the Community market,
i.e.
where injury is being suffered, by increasing exports.

(213) The claim was therefore rejected and it is concluded that the export performance of the Community

industry did not cause any material injury.

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6.3.3. Imports from other third countries

(214) The imports from third countries were also examined. The following tables show the development of
the market share and the average prices of the countries each accounting for more than 2 % of the
overall Community imports during the IP:

Market shares

2001

2002

2003

2004

IP

Romania

India

Indonesia

Brazil

Macao

Thailand

6,4 %

3,9 %

2,0 %

1,4 %

1,4 %

0,9 %

8,0 %

5,0 %

1,9 %

1,6 %

1,9 %

0,9 %

8,4 %

5,4 %

1,6 %

1,9 %

2,4 %

1,0 %

7,8 %

6,4 %

1,6 %

2,5 %

3,3 %

1,2 %

Average prices (EUR/pair)

2001

2002

2003

2004

Romania

India

Indonesia

Brazil

Macao

Thailand

14,0

11,7

12,4

16,9

13,1

15,4

14,9

11,6

11,6

15,8

11,7

14,0

15,1

10,5

11,2

13,7

11,0

13,2

15,3

10,4

9,6

13,2

10,9

12,3

7,7 %

6,2 %

1,6 %

2,9 %

2,5 %

1,2 %

IP

15,3

10,5

9,6

12,6

11,0

12,2

Variance
2001/IP
(% points)

+ 1,3 %

+ 2,3 %
– 0,4 %

+ 1,5 %

+ 1,1 %

+ 0,3 %

Variance
2001/IP

9 %
– 10 %
– 23 %
– 25 %
– 16 %
– 21 %

(215)

Individually, none of the countries listed above significantly increased their market shares during the
period considered. The absolute level of their market share remained far below that of the countries
concerned, and they also developed differently. It should be recalled that the cumulated market share
of the countries concerned increased substantially from 9,2 % in 2001 to 22,8 % during the IP.

(216) With the exception of one country, the average unit prices of the other third countries decreased over
the period considered. However, they decreased to a lesser extent compared to the prices of the
countries concerned, but especially their absolute price level during the overall period considered
remained, with one exception, on average far above the price level of the dumped imports. In the
case of imports from Indonesia, prices were lower than those of imports from Vietnam in the IP, but
this has to be seen against a declining market share for Indonesia as opposed to a hugely increasing
one for Vietnam. During the IP, import prices from the above countries were on average 30 % higher
than import prices from the countries concerned. In addition, individually, the third country market
It can therefore even be
shares did not increase similarly to that of the countries concerned.
considered that
the
countries concerned in order to maintain their level of market shares.

third countries had to follow the decreasing price trends of

the other

(217) For the above reasons, it is concluded that imports from other third countries did not materially

affect the situation of the Community industry.

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6.3.4. Changes in the patterns of consumption and decline in demand

(218)

It was claimed by importers that injury suffered by the Community footwear producers was caused
by a decrease in demand in the footwear segment in which the traditional Community producers
specialised. Likewise certain exporting producers claimed that due to changing fashions, consumers
nowadays are looking for low quality, disposable and mass marketed footwear.

(219)

In this respect, reference is made to section 2 above where it was concluded that all types of the
product concerned and the like product were regarded as forming one single product and that
footwear produced in the countries concerned and in the Community compete at all levels of the
market. Any claim regarding certain types is therefore not relevant and the analysis should be carried
out at the level of the product concerned and the like product, i.e. all types of footwear with uppers
of leather as described in the relevant paragraph above. As to the overall Community consumption
for the footwear with uppers of leather, it remained relatively stable during the period considered.
The claims were therefore rejected and it is concluded that injury was not caused by any decline of
demand.

6.3.5. Exchange rate fluctuations

(220) Various exporting producers and importers claimed that the injury suffered by the Community
industry was caused by the appreciation of the EURO against the USD which led to significant
import price decreases, since allegedly most Chinese and Vietnamese footwear is traded in American
dollars (USD).

(221)

It is recalled that the investigation has to establish whether the dumped imports (in terms of prices
and volume) have caused material injury to the Community industry or whether such material injury
was due to other factors. In this respect, Article 3(6) of the basic Regulation states that it is necessary
to show that the price level of the dumped imports cause injury. It therefore merely refers to a
difference between price levels, and there is thus no requirement to analyse the factors affecting the
level of those prices.

(222)

In practice, the effect of the dumped imports on the Community industry's prices is essentially
examined by establishing price undercutting, price depression and price suppression. For this
purpose, the dumped export prices and the Community industry's sales prices are compared, and
export prices used for the injury calculations may sometimes need to be converted into another
currency in order to have a comparable basis. Consequently, the use of exchange rates in this context
only ensures that the price difference is established on a comparable basis. From this, it becomes
obvious that the exchange rate can in principle not be another factor of the injury.

(223) The above is also confirmed by the wording of Article 3(7) of the basic Regulation, which refers to
known factors other than dumped imports. The list of the other known factors in this Article does
not make reference to any factor affecting the price level of the dumped imports.To summarise, if the
exports are dumped, and even if they benefited from a favourable development of exchange rates, it
is difficult to see how the development of such exchange rate could be another factor causing injury.

(224) Thus, the analysis of the factors affecting the level of the prices of the dumped imports, be it
exchange rate fluctuations or something else, cannot be conclusive and such analysis would go
beyond the requirements of the basic Regulation.

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(225)

In any event, and without prejudice of the above, even if exchange rate fluctuations had an effect on
import prices, it would be impossible to separate and distinguish their impact since it is not precisely
known to what extent imports from the countries concerned are traded in USD. In addition the
biggest importers hedge their USD financial transactions and it is therefore very difficult to determine
what would be the relevant exchange-rate to be examined.

6.3.6. Lifting of the quota

(226) Certain parties claimed that the lifting of the import quotas at the beginning of 2005 was also a
cause of injury to the Community industry. In this respect, it is recalled that the quotas only applied
to one of the two countries concerned and not all the products covered by this proceeding. In
addition, the injury analysis has been established over a longer period, in this case between 2001 and
the end of the IP, and does therefore not only refer to the post quota period, i.e. the first quarter
2005. The claim was therefore rejected.

6.3.7. Complainants have failed to modernise, are highly fragmented and have high labour costs

(227) Certain parties argued that the poor economic situation of the complainants is related to the fact that
they did not modernise their production facilities and methods, and that the injury was caused by the
fact that the sector is highly fragmented and not competitive compared to imports from low labour
cost countries.

(228)

Indeed, the Community footwear sector is highly fragmented and labour costs in the Community are
higher than in the countries concerned. The degree of fragmentation of the industry and the labour
costs in the Community did not, however, increase during the period considered. In these circum-
stances, a causal link between those factors and the deterioration of the situation of the Community
industry in the period considered cannot be established.

(229) These claims were therefore rejected.

6.3.8. EC footwear industries relocation of production

(230) The association of importers claimed that the relocation of EC producers to low-wage countries had
contributed to the injury suffered by the Community footwear industry. This allegedly resulted in
lowering production and sales in the Community and entailed significant restructuring costs, thus
affecting the financial situation of those companies.

(231)

It should be recalled, however, that the injury analysis specifically focuses on the development of the
economic situation of the Community industry. Since the producers that have delocalised production
are, as already explained above, not even considered Community producers for the purposes of this
investigation, thus not part of the Community industry, their situation has not been taken into
the companies that have relocated their
consideration for the injury analysis. The imports of
production have however been taken into consideration when examining the imports of
the
countries concerned or from the other third countries.

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6.4. Conclusion on causation

(232)

In conclusion, it is confirmed that the material injury suffered by the Community industry, which is
characterised especially by a decline in sales volume, market shares and unit sales price resulting in a
deterioration of the profitability indicators, was caused by the dumped imports concerned. Thus, the
effect of the other examined factors was practically non-existent and was therefore not such as to
break the causal link between the dumped imports and the injurious situation of the Community
industry.

(233) Given the above analysis which has properly distinguished and separated the effects of all the known
factors on the situation of the Community industry from the injurious effects of the dumped imports,
it is hereby confirmed that these other factors as such do not reverse the fact that the injury assessed
must be attributed to the dumped imports.

(234)

It is therefore concluded that the dumped imports originating in the countries concerned have caused
material injury to the Community industry within the meaning of Article 3(6) of the basic Regu-
lation.

7. COMMUNITY INTEREST

(235)

It has been examined whether Community interest calls for intervention to prevent the injurious
dumping that was established.

7.1. Interest of the Community industry

(236) The above analysis has clearly demonstrated that

the dumped imports caused injury to the
Community footwear industry. The sharply increased amount of dumped imports in recent years
caused a strong price depression on the Community footwear market at wholesale level, i.e. where
competition between imported and Community manufactured footwear takes place. The Community
industry is generally no longer in a position to secure orders at a satisfactory price level, as evidenced
by the situation of the sampled Community producers that were barely profitable during the IP.
Furthermore, in many instances, the Community industry is no longer in a position to secure new
orders since, at current price levels, this would require that they sell below their cost of production.
The Community industry is therefore facing difficulties related to both sales prices and sales volume.

(237)

factories,

In this context, without the imposition of measures, the position of the Community industry will
clearly continue to deteriorate, resulting in additional factory closures and job losses. Since producers
tend to be grouped together geographically in certain Member States, with orders sometimes
outsourced to other local
the disappearance of one producer can have a significant
knock-on effect on other local companies. This would also apply to local suppliers of raw
materials thus significantly affecting the overall activities. The imposition of measures would have
several positive effects for the Community industry. Measures could prevent a further substantial
increase of dumped imports from the countries concerned, which would enable the Community
industry to at least maintain its current position on the market. The import data effectively show that,
any increase of market share by the countries concerned is gained at the expense of the Community
footwear industry.

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(238) Furthermore, when anti-dumping duties are imposed on imports of footwear from the countries
concerned, wholesalers and importers would be much more likely to switch their sources of supply,
at least partially, to Community producers. Should measures be imposed thus allowing the level of
the import prices to be restored to non-dumped levels, the Community industry would be able to
compete under fair trade circumstances on the basis of proper comparative advantage thus leaving
them in a position to receive a satisfactory volume of new orders at prices which would ensure them
a normal level of profit. Some increase in prices is indeed required to remove the injury.

(239)

Imposing measures is therefore clearly in the interest of the Community industry, i.e. those producers
actively supporting the complaint, but also in the interest of the other Community producers that did
not, or could not, actively support the complaint.

(240) Certain interested parties argued that the imposition of measures would not restore the situation of
the Community industry since importers would simply shift their supply to countries not subject to
measures. On that basis, they claim that any measures would therefore not be in the interest of the
Community industry.

(241) This claim was however rejected. Indeed, the fact that importers may shift to other supplier countries
is certainly not a valid reason for not taking action against injurious dumping in this case. Not only is
it impossible to anticipate the extent to which such a shift would take place but these imports could
also be dumped leaving the possibility that anti-dumping action could also be instigated against
them.

(242)

In conclusion, the imposition of anti-dumping measures would allow the Community industry to
recover from the effects of injurious dumping found.

7.2. Interest of the other economic operators

7.2.1. Interest of the consumers

(243) No representations were received from consumers organisations following the publication of the
notice of initiation of this proceeding. Some parties have, however, argued that imposing measures
on imports of the product concerned would be contrary to the interest of consumers. They allege
that the choice for consumers would be much reduced if Community market access is reduced for
Chinese and Vietnamese products, in particular in the fast fashion segment mainly supplied by the
Chinese and Vietnamese footwear sector. Secondly, it was submitted that measures would increase
the cost for the average consumers, in terms of price, and finally that the Community industry would
not have the capacity to meet the overall demand for footwear.

(244) The claims concerning the negative impact of any measures on the consumers have been analysed in

detail. In order to assess this impact, the following elements were considered:

— around two thirds of the overall footwear sector is not affected by the measures imposed under
this Regulation. In fact footwear, with uppers of leather, covered by this proceeding represent less
than 35 %, in comparison to 46 % in 2001,

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— the proposed measures do not apply to all types of footwear with uppers of leather are. Indeed,
the investigation concluded that certain types of footwear, see the above conclusion on STAF, —
should not be covered by measures. This further reduces the scope of the measures in relation to
the overall Community footwear market. In this respect, it is recalled that, during the IP, STAF
represented almost 20 % of the imports from the countries concerned of footwear with uppers of
leather,

— a significant portion of the Community leather uppers footwear market is still supplied by sources
other than China and Vietnam, i.e. sources of supply that will not be subject to any measures. The
other third countries, representing around 30 % of the imports, will still be competing without
being subject to measures. Similarly, the anti-dumping measures will not apply to EU producers
sales, which still represented around half of the supply of leather footwear,

— importers/wholesalers and distributors/retailers are normally involved in the distribution to
consumers. The two stages each apply a mark-up, or a margin,
in order to cover their own
costs and to allow for a certain profit. The level of this margin may significantly vary from one
operator to the other, but is, on average, relatively significant. For example, the mark-up applied
during the IP by the co-operating importers to their sales prices to retailers was on average
125 %, and ranged from 20 to 200 %. Thus, there is a considerable gap between import prices
and resale prices. Concerning the allegation that measures could result in a reduced choice of
footwear, it should be noted that anti-dumping measures would only ensure that low dumped
pricing is eliminated. There will therefore be no restriction in terms of import volume since the
majority of the Community market will still be supplied by sources that will not be directly
affected by measures.

(245)

In any case, any decrease of import volumes from the countries concerned could, at least in the
medium term, also be compensated by an increasing supply of footwear by the Community industry
and the countries not subject to measures, though this would take a short time to develop.

(246)

In terms of product range, it is recalled that not only fast fashion and/or lower-end footwear is
manufactured in the countries concerned.
Indeed, high- and mid-range brand footwear is also
produced in China and in Vietnam. Furthermore, the investigation revealed that the Community
industry also manufactures all ranges of footwear, not just the high quality and stylish town footwear,
as often claimed. On that basis, the claim that measures would result in a reduced choice of footwear,
overall and for certain specific fashion items, would at least need further evidence to substantiate it.

(247) Concerning the effect on consumer prices, account has to be taken of the fact that very considerable
difference exists between import prices on which measures are applied, and consumer prices. Import
prices are so much lower that the impact on the much higher consumer prices will necessarily be
much smaller. The fact that there are at least two intermediary economic operators between impor-
tation and consumer levels will limit the impact on consumers.

(248) Finally, the provisional available data on consumer prices indicates that consumers in the Community
generally did not benefit from the price depression of footwear at the wholesale level. Indeed, average
import prices of all footwear in general fell by more than 20 % in the 2001 IP, while consumer
prices increased slightly for the same period. This aspect will have to be specifically investigated for
the product concerned for final findings.

(249)

It is not considered likely that consumers would bear the full brunt of any measures given the strong
competition that prevails at this level. It is observed that if the cost of measures were shared equally
between the three main categories of economic operators, the cost to consumers would be, on
average, approximately 2 % or EUR 1,00 per pair.

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Children's footwear

(250)

Interested parties have argued that the cost of imposing measures on children's shoes is significantly
higher than for the other shoes under investigation. This is mainly because, children shoes have to be
replaced considerably more often than adult shoes, three to four times more often for young
children. Thus,
the effect of anti-dumping measures on children shoes would be substantially
higher (three to four times the amount) as compared to the effect of measures on normal shoes,
as customers would have to pay noticeably more, relatively and cumulatively, for the purchase of
children's shoes than for the purchase of adults' shoes. The additional costs caused by the imposition
of measures to consumers of children's shoes might also negatively affect the financial situation of
the average European families to a considerable extent and jeopardise the incentive for parents to buy
quality footwear at regular intervals for their children.

(251) Given that the provisional findings indicate that children's shoes have to be replaced three to four
times more often than other shoes, it is fair to consider that the absolute cost to consumers will also
be substantially higher for these shoes as compared to the other shoes concerned in this proceeding.
Provisional measures could thus constitute a very significant burden for families with young children.
Indeed, the risk would exist that the imposition of provisional measures on these shoes could cross
the dividing line between the benefit of such measures and their possible cost.

(252) On those grounds, and at this provisional stage,

it is concluded that the benefits that would be
obtained by preventing injury for the remainder of this investigation through the imposition of
provisional measures on imports of children's shoes is outweighed by its potentially negative
effect on consumers. It is therefore provisionally concluded that imposing measures on children's
footwear would not be in the interest of the Community. They should therefore provisionally be
excluded from the scope of provisional anti-dumping measures; this issue will be re-examined in
depth before the imposition of any definitive measures.

7.2.2. Interest of the distributors/retailers

(253) Only a limited number of representations were received from distributors/retailers or organisations of
distributors/retailers within the given deadlines. Indeed, only one submission was received from a
consortium of retailers from one Member State, and questionnaire replies were received from three
importers, from the same Member State, who also have their own distribution network, including
two supermarket chains. Those companies imported around 15 % of the product concerned origi-
nating in China and Vietnam during the IP.

(254) Those parties claimed that the retail sector is a significant employer that would be negatively affected
by any imposition of duties. Indeed, it was claimed that the retailers would be in a position to pass
on to consumers only a part of the increasing costs resulting from anti-dumping duties, and that
therefore their financial situation, which is already negatively affected by a poor economic situation,
will further deteriorate, thus possibly leading to job losses.

(255) Although the comments received from the retail sector within the legal framework of the investi-
gation were limited and referred to only one Member State, the Commission decided to carry out a
detailed analysis at the level of the overall Community. The following elements were noted.

thus significantly more than just

(256) Firstly, it should be pointed out that the footwear retail sector is concerned by sales of all types of
footwear,
footwear covered by this proceeding.
Furthermore, distributors/retailers are often also involved in sales of other products. This is for
example typically the case of non-specialised supermarkets for which sales of
footwear only
represent a minor portion of overall sales. Therefore, the retail employment figure cannot simply
be compared with the number of persons employed in footwear manufacturing activities.

the types of

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(257) Secondly,

it is considered that the retail sector would in fact be negatively affected only if the
imposition of anti-dumping measures would result in a decrease of the Community consumption
of the footwear, i.e. if the retailers would see their turnover decrease significantly. Indeed, even if their
purchase price may increase following the imposition of measures, the retailers would still be in a
position to pass on, at least partially, this increase to the consumers in order to maintain a reasonable
level of profit. In fact, retailers admit in their submissions that they would be in a position to partially
absorb any cost increase. The retailers would in consequence suffer a negative effect only if such price
increases would result in a decline of the number of pairs of shoes purchased by the consumers.
However, in view of the above conclusions on prices, it is not considered likely that any significant
fall in consumption will occur.

(258) The view that the impact of measures on distributors/retailers will be limited is reinforced by the fact
that those operators usually sell all kinds of footwear, and not just the types concerned, of Chinese or
Vietnamese origin. Therefore, the imposition of anti-dumping measures would only affect a limited
portion of their purchase prices, which would remain relatively small
in comparison with their
overall expenses.

(259) Furthermore, footwear is mainly distributed in the Community by the following three sales channels:
independent retailers, brand retail chains and non-specialised supermarkets. Other sales channels also
exist (e.g. mail order companies), but they remain rather limited.

(260)

Independent retailers represent the more traditional distribution channels. Those retailers are usually
supplied by wholesalers in the Community, and because of their high operating cost structure (rent,
salaries of the sales force, etc.) they usually apply significant margins. Independent retailers sell all
kinds of footwear, i.e. leather and non-leather uppers from all origins, and therefore their supplies of
the product concerned are expected to be relatively limited given the share of the product concerned
in overall sales of footwear. Consequently, they would be affected only in a very limited way, if at all,
by the imposition of measures. Since they are usually supplied by wholesalers, it can also be assumed
that part of the impact of the duties would be absorbed at that level.

(261) Brand retail chains purchase their footwear centrally, and sell them via their retail stores located in
various cities, and sometimes in different countries. None of those chains cooperated with the
investigation, which may already be an indication that measures would not negatively affect their
situation. Nevertheless, the following elements should be taken into consideration. Because they buy
in large quantities and have limited operating costs and sometimes import directly themselves, brand
retail chains can generally afford to sell at reduced prices. Indeed, they often operate as discount
stores located out of town, with a limited number of employees. Since they aim at offering relatively
low priced footwear, their supplies from the countries concerned may be more important than in the
case of the independent retailers. However, they also sell all types of footwear, i.e. not just those
covered by the investigation, and a part of their turnover also consists of sales of non-footwear
products. In addition, in view of their important purchasing power, they are expected to be able to
switch their sources of supply, at least to a certain extent, and also only partly pass on to the
consumers any cost increase. Therefore, as in the case of the independent retailers, they would in fact
be seriously affected only if their sales volume were to be significantly reduced following the
imposition of duties which, as concluded above, is unlikely.

(262) Non-specialised supermarkets are an important sales channel in terms of volume, but less in terms of
value. Indeed, they focus more on the lower end of the market with the objective to sell significant
volumes. Non specialised supermarkets sometimes import footwear themselves, but mainly operate
through agents in the Community, or in the country of origin of the products. Footwear usually
represents only a minor portion of the supermarkets' overall turnover, and they are certainly very
flexible in their choice of suppliers, thus they could relatively easily change their source of supply, or
even increase their supplies of Community manufactured footwear. For those reasons, it is expected
that measures would not have significant adverse effects on the financial situation of that sales
channel.

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(263) More generally,

it should be noted that, based on the figures submitted by the co-operating
importers, distributors/retailers also did not benefit from decreasing import prices in recent years.
Indeed, while the cooperating importers saw their import prices decrease by around 30 % on average
in the 2001 IP, the level of their resale prices remained on average relatively stable.

(264) On the basis of the above findings, it is concluded that the impact of the proposed measures on the
retailers and distributors is likely to remain limited. It should also be noted that since the majority of
the sales of leather uppers footwear is still supplied by the Community producers, which are still in a
position to offer a wide variety of types of footwear, and with relatively short delivery times as
compared to imported products,
it is also in the interest of the retailers and distributors that
Community production be maintained.

7.2.3. Interest of the unrelated importers in the Community

(265) Questionnaire replies were received from 33 importers representing, during the IP, around 25 % of
the Community imports of the product concerned. The analysis of the situation of the importers has
therefore been based on the situation of those importers that provided reliable data within the given
deadlines.

(266) Overall,

the cooperating importers sourced around 70 % of

their supplies from the countries
concerned. During the investigation period, their average import price was EUR 9/pair. It should
be noted that while this average import price decreased during the 2001 IP, in line with the trend
given by the Eurostat data, i.e. by around 30 %, their average resale prices remained relatively stable
during the same period.

(267) Those cooperating companies reported a (weighted average) net profit of 12 % of their turnover, and
the data submitted showed that they apply an average mark-up of 125 %. The level of this mark-up
significantly fluctuated, however, amongst the various companies, and ranged between 20 % and
more than 200 %.

(268) Furthermore, two categories of importers can be identified within the cooperators: those present in

the mid/high end of the market, and those active in the lower end of the market.

(269) The first category of importers mainly consists of former Community producers that delocalised
manufacturing to third countries, namely to the countries concerned. Those companies usually still
keep a significant part of their activities in the Community, e.g. design, R & D, sourcing of the raw
material, and sometimes, even have their own distribution chain. For those reasons, they usually
employ a relatively large number of persons, particularly compared to the second category. These
importers usually sell brand footwear, at a level of prices clearly above the level of the second
category of
importers. Their footwear is mainly distributed via independent retailers, but also
sometimes through brand retail chains, or even by their own related distributors.

(270) Since those companies are present in the mid/high-end of the market, their import price is also
higher than that of the importers active in the lower end of the market. On average, the cooperating
importers active in the mid/high-end of the market reported an average purchase price of around
EUR 11/pair. It should be noted that the mark-up they apply is very significant and, was on average
around 200 %. In other words their resale prices were on average above EUR 30/pair. Such level of
mark-up is explained by the added value they generate in the Community (specific costs related to
design, sourcing R & D, etc.), but also by their significant expenses related to marketing and brand.
On average, they reported a profit margin of around 10 % of their turnover.

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(271) The second category of importers focuses more on volume, and mostly consists of wholesalers or
even sometimes non-specialised supermarkets. An examination of responses of lower-end importers
showed that their import price was on average EUR 6/pair. The investigation revealed that they
applied a mark-up of 75 % during the IP and reported, on average, a profit margin of 17 % of their
turnover. This is explained by the fact that they have low structure costs, and low added value in the
Community, but also have more limited selling expenses. These companies also employ a more
limited number of staff, i.e. on average less than 10 per company according to the co-operators.

(272)

In view of their different situation, measures, in the form of ad valorem duties, are expected to affect
the distinct categories of importers differently. Indeed, in the case of the first category, since the duty
is applied to a higher import price, the absolute value of the measures would accordingly also be
higher. This impact should however be seen in the light of the level of their resale prices. Indeed, it is
recalled that these importers apply on average a mark-up of 200 %. Therefore, even if the totality of
the import price increase were to be fully passed on to their customers, i.e. mostly retailers and
distributors, it would only represent, in absolute terms, a limited increase of their resale prices. This
would probably not significantly affect the volume of their sales, since those importers focus on mid
to high range products. It is however likely that part of the import price increase will have to be
absorbed by these companies, which will have to either decrease their selling costs, or see their profit
margin fall. They may therefore face certain adverse effects in the short term, especially with regard to
orders already entered into at an agreed price before the provisional measures enter into force. This is
discussed in detail in recitals 286 to 290.

(273)

In the case of the second category of importers, an ad valorem duty would result in a moderate
absolute price increase since their import price is relatively low. With a relatively comfortable level of
profit, i.e. on (weighted) average 17 % during the IP for the co-operating importers, it is expected that
the measures would not seriously affect the financial situation of these companies. It should be noted
that since this category of importers focuses on volume, it is likely that the importers that did not
cooperate also belong to this category, and the absence of any expected significant negative impact
on their financial situation may probably explain this lack of co-operation. However, as with the first
category of importers and as discussed in recitals 286 to 290, the impact of provisional measures
may be significant, especially given the focus of this category of importers on volume.

(274)

It is however important to emphasise the fact that the above analysis is based on the average data
provided by the cooperating importers. Therefore, depending on how importers individually perform
as compared to those averages, they may of course be differently affected by the measures. In
it should be noted that importers usually establish long-term relationships with their
addition,
suppliers, sometimes even partnerships, and are often committed to long-term contracts whereby
orders are placed months before actual delivery. Therefore switching from suppliers, or even country
of origin, not only takes time, but also implies additional expense. Furthermore, importers may face
the situation in which they have already committed themselves to resale prices for orders they have
placed in the countries concerned, and which will only be delivered subsequently. Those importers
may consequently not be in a position to pass on, even partially, any additional duty, which would in
this case probably result in negative financial effects. It cannot be excluded that some importers will
not be able to easily absorb this financial shock.

(275) For the above reasons,

it can be concluded that the imposition of measures may indeed have a
possible negative effect on the financial situation of certain importers. On average however, this
negative effect is not expected to have a significant financial impact on the overall situation of the
importers. This is certainly the case for the category of importers active on the lower end of the
market, which currently benefit from a more flexible financial situation. These importers likely import
a significant part of the leather uppers footwear originating in the countries concerned.

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7.3. Conclusion on Community interest

(276) The above analysis showed that it is in the interest of the Community industry to impose measures,
since those measures are expected to at least restrain the high level of imports at dumped prices
which proved to have a significant negative impact on the financial situation of the Community
industry. The other Community producers are expected to also benefit from those measures.

(277) The analysis also demonstrated that consumers are not going to be affected by the effect of anti-

dumping measures or, at worse, only to a very marginal extent.

(278) The distributors and retailers may see their purchase prices of the product concerned increase, but as
compared to their overall costs and situation, they will probably not be significantly affected by
measures.

(279) On average, importers would be in a position to overcome the imposition of measures, although
depending on their specific situation, some may indeed face certain adverse effects. This is principally
related to the fact that they are often engaged in long term contracts with their suppliers, and
sometimes even committed to resale prices.

(280) On balance, however,

it is considered that imposing measures,

i.e. removing injurious dumping,
would allow the Community industry to maintain its activity and bring an end to the successive
closures and job losses it has faced in the last years, and that the adverse effects that the measures
may have on certain other economic operators in the Community are not disproportionate as
compared to those beneficial effects for the Community industry.

(281) This does not, however, apply to children's shoes which should therefore provisionally be excluded
from the scope of measures. This issue will be re-examined in depth before the imposition of any
definitive measures.

8. PROVISIONAL ANTI-DUMPING MEASURES

(282)

In view of the conclusions reached with regard to dumping, resulting injury and Community interest,
provisional measures on imports of the product concerned from PRC and Vietnam should be
imposed.

8.1. Injury elimination level

(283) The level of the definitive anti-dumping measures should be sufficient to eliminate the injury to the
Community industry caused by the dumped imports, without exceeding the dumping margins found.
When calculating the amount of duty necessary to remove the effects of the injurious dumping, it
was considered that any measures should allow the Community industry to cover its costs and obtain
a profit before tax that could be reasonably achieved under normal conditions of competition, i.e. in
the absence of dumped imports.

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(284) On the basis of the information available, it was found that a profit margin of 2 % of turnover could
be regarded as an appropriate level that the Community industry could be expected to obtain in the
absence of injurious dumping. This corresponds to the highest level of profit achieved by the
Community industry during the period under examination, and namely during the year 2002
when the market shares from the countries concerned were relatively limited as compared to their
IP level.

(285) The necessary price increase was then determined on the basis of a comparison, at the same level of
trade of the weighted average import price as established for the price undercutting calculations, with
the non-injurious price of products sold by the Community industry on the Community market. The
non-injurious price has been obtained by adjusting the sales price of each company composing the
Community industry to a break-even point and by adding the abovementioned profit margin. Any
difference resulting from this comparison was then expressed as a percentage of the total cif import
value.

8.2. Provisional duties

(286)

it is
In the light of the foregoing, and in accordance with Article 9(4) of the basic Regulation,
considered that provisional anti-dumping measures should be imposed on imports originating in
the PRC and Vietnam at the level of the lowest of the dumping and injury margins, in accordance
with the lesser duty rule.

(287) On the basis of the above, the level of the provisional duties, based on the injury margins, and are as

follows:

PRC

Vietnam

Country

Company

Anti-dumping duty

All companies

All companies

19,4 %

16,8 %

(288)

it

In view of the exceptional circumstances of the present proceeding, notably that it concerns a basic,
non-durable consumer product, which is vulnerable to fashion trends and the trading of which
presents unique characteristics,
is considered appropriate to phase-in the provisional anti-
dumping measures. As the Community industry in particular sustained injury as a result of unfair
trade practices from the countries concerned in the last part of the IP, its production capacity has
been considerably reduced and, as a result, Community producers cannot immediately supply the
necessary quantities if import levels fall as a result of measures. As discussed in recital 176, prior to
the injurious dumping practices under investigation, the Community industry's production levels were
considerably higher. Phasing-in the dumping duty will allow the Community industry a short grace
period to enable it to return to previous production levels. In addition, by allowing the Community
industry sufficient time to increase its production levels, availability of the product concerned will
remain at reasonable levels to meet consumer demand.

(289) Furthermore,

the product concerned is a fashion-driven consumer good, usually purchased by
importers and retailers on the basis of medium term contracts, for which prices are often already
settled at the time when goods are ordered. Therefore switching from suppliers, or even country of
origin, not only takes time, but also implies additional expense. Furthermore, importers may face the
situation in which they have already committed themselves to resale prices for orders they have
placed in the countries concerned, and which will only be delivered subsequently. At the same time,
for those contracts where the delivery of goods is imminent or very close, it will not be possible to
obtain alternative sources of supply, simply because of the lead time for production.

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(290) These long lead times are especially related to the fact that footwear is not only fashion driven, but
also subject to seasonality effects. Indeed, before the beginning of a specific season, footwear has to
be designed, the raw material has to be chosen, the appropriate suppliers thereof haveto be selected
and certain production tools (moulds) and prototypes need to be manufactured in advance. Those
trade particularities in the footwear sector mean that there are long lead times between order and
delivery, which means that importers have to plan ahead and that a change in their trading terms
may be very disruptive. It is therefore considered in the interest of trade, overall, to avoid situations
in which traders are faced with additional duties on products purchased and accounted for months
before.

(291) To sum up, the likely benefit for the Community industry of imposing the full level of the measures

immediately would in such situation be outweighed by the negative impact on the trade.

(292) Therefore, it is considered in the Community interest that the full amount of the duty be gradually
phased in, in four steps, in order to ensure that unfair trade practices caused from injurious dumping
are removed and parties can adjust to the new situation, whilst at the same time the Community
market remains open, traditional trade flows are preserved and the availability of supply to meet the
demand is guaranteed. The duties will be imposed in increments of 25 %. As the period of the
adaptation phase is necessarily short, i.e., six months it was considered appropriate to impose the full
amount of the duty as near the end of the provisional measures as possible with the total amount of
provisional anti-dumping duties being imposed at as late a stage as possible, in order to make the
imposition of the full duty as smooth as possible. It is emphasised that this approach is introduced
here due to the exceptional nature of the footwear industry and that its introduction should clearly be
restricted to the provisional conclusions of this investigation.

(293) The provisional anti-dumping duties should therefore be imposed in as follows:

(i)

from entry into force of this Regulation until 1 June 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

4,8 %

4,2 %

(ii)

from 2 June 2006 until 13 July 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

9,7 %

8,4 %

(iii) from 14 July 2006 until 14 September 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

14,5 %

12,6 %

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(iv) from 15 September 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

19,4 %

16,8 %

(294)

In order to ensure that any risk of false declarations or circumvention of the measures is minimised, a
strengthened administrative import surveillance system on the basis of Article 308(d) of Commission
Regulation (EC) No 2454/1993 (5), will allow earlier information on relevant import trends. Should
evidence be found showing that these import trends change significantly this will be urgently
investigated by the Commission.

9. FINAL PROVISION

(295)

In the interest of sound administration, a period should be fixed within which the interested parties
which made themselves known within the time limit specified in the notice of initiation may make
their views known in writing and request a hearing. Furthermore, it should be stated that the findings
concerning the imposition of duties made for the purposes of this Regulation are provisional and
may have to be reconsidered for the purposes of any definitive duty,

HAS ADOPTED THIS REGULATION:

Article 1

ex 6403 30 00,

ex 6403 20 00,

A provisional anti-dumping duty is hereby imposed on imports of certain footwear with uppers of
1.
leather or composition leather, excluding footwear involving special technology, children's footwear and
footwear with a protective toecap, originating in the People's Republic of China and Vietnam and falling
ex 6403 51 95,
within CN codes:
ex 6403 59 99,
ex 6403 51 99,
ex 6403 91 98,
ex 6403 91 13,
ex 6403 99 11,
ex 6403 99 96,
ex 6403 99 98 and ex 6405 10 00 (6)
(TARIC codes 6403 20 00 90, 6403 30 00 29, 6403 30 00 99,
6403 51 15 90, 6403 51 19 90, 6403 51 95 90, 6403 51 99 90, 6403 59 11 90, 6403 59 35 90,
6403 59 39 90, 6403 59 95 90, 6403 59 99 90, 6403 91 13 99, 6403 91 16 99, 6403 91 18 99,
6403 91 93 99, 6403 91 96 99, 6403 91 98 99, 6403 99 11 90, 6403 99 33 90, 6403 99 36 90,
6403 99 38 90, 6403 99 93 29, 6403 99 93 99, 6403 99 96 29, 6403 99 96 99, 6403 99 98 29,
6403 99 98 99 and 6405 10 00 90).

ex 6403 51 19,
ex 6403 59 95,
ex 6403 91 96,
ex 6403 99 93,

ex 6403 59 11,
ex 6403 91 16,
ex 6403 99 33,

ex 6403 59 39,
ex 6403 91 93,
ex 6403 99 38,

ex 6403 59 35,
ex 6403 91 18,
ex 6403 99 36,

ex 6403 51 15,

2.

For the purpose of this Regulation, the following definitions shall apply:

(a)

‘footwear involving special technology’ shall mean footwear having a cif price per pair of not less than
EUR 9, for use in sporting activities, with a single- or multi-layer moulded sole, not injected, manu-
factured from synthetic materials specially designed to absorb the impact of vertical or lateral
movements and with technical features such as hermetic pads containing gas or fluid, mechanical
components which absorb or neutralise impact, or materials such as low-density polymers and
falling within
ex 6403 91 93,
ex 6403 91 18,
ex 6403 99 98 (TARIC codes
ex 6403 91 96,
6403 91 13 10, 6403 91 16 10, 6403 91 18 10, 6403 91 93 10, 6403 91 96 10, 6403 91 98 10,
6403 99 93 11, 6403 99 96 11, 6403 99 98 11);

CN codes
ex 6403 91 98,

ex 6403 91 13,

ex 6403 91 16,

ex 6403 99 96,

ex 6403 99 93,

(5) Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council
Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 253, 11.10.1993, p. 1). Regulation as
last amended by Regulation (EC) No 2286/2003 (OJ L 343, 31.12.2003, p. 1).

(6) As defined in Commission Regulation (EC) No 1719/2005 of 27 October 2005 amending Annex I to Council
Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff
(OJ L 286, 28.10.2005, p. 1). The product coverage is determined in combining the product description in
Article 1(1) and the product description of the corresponding CN codes taken together.

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(b) ‘children's footwear’ shall mean footwear with a sole and heel combined having a height of 3 cm or less:

— with insoles of a length of less than 24 cm, or

— without inner sole and with an interior length of less than 24 cm when measured from toe to heel,

— and falling within CN codes: ex 6403 20 00, ex 6403 30 00 and ex 6405 10 00 (TARIC codes

6403 20 00 10, 6403 30 00 21, 6403 30 00 91, and 6405 10 00 10);

(c)

‘footwear with a protective toecap’ shall mean footwear incorporating a protective toecap and an impact
least 100 joules (7) and falling within CN codes: ex 6403 30 00, ex 6403 51 15,
resistance of at
ex 6403 59 39,
ex 6403 59 11,
ex 6403 51 95,
ex 6403 51 19,
ex 6403 91 16,
ex 6403 59 99,
ex 6403 59 95,
ex 6403 91 93,
ex 6403 99 38,
ex 6403 99 33,
ex 6403 91 98,
ex 6403 91 96,
ex 6403 99 93, ex 6403 99 96, ex 6403 99 98 and ex 6405 10 00 (TARIC codes 6403 30 00 21,
6403 30 00 91, 6403 51 15 10, 6403 51 19 10, 6403 51 95 10, 6403 51 99 10, 6403 59 11 10,
6403 59 35 10, 6403 59 39 10, 6403 59 95 10, 6403 59 99 10, 6403 91 13 91, 6403 91 16 91,
6403 91 18 91, 6403 91 93 91, 6403 91 96 91, 6403 91 98 91, 6403 99 11 10, 6403 99 33 10,
6403 99 36 10, 6403 99 38 10, 6403 99 93 21, 6403 99 93 91, 6403 99 96 21, 6403 99 96 91,
6403 99 98 21, 6403 99 98 91 and 6405 10 00 10).

ex 6403 51 99,
ex 6403 91 13,
ex 6403 99 11,

ex 6403 59 35,
ex 6403 91 18,
ex 6403 99 36,

The rate of the provisional anti-dumping duty applicable, before duty, to the net free-at-Community-

3.
frontier price of the products described in paragraph 1 shall be as follows:

(i)

from entry into force of this Regulation, i.e. 7 April 2006 until 1 June 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

4,8 %

4,2 %

(ii)

from 2 June 2006 until 13 July 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

9,7 %

8,4 %

(iii) from 14 July 2006 until 14 September 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

14,5 %

12,6 %

(7) The impact resistance shall be measured according to European norms EN 345 or EN 346.

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(iv) from 15 September 2006

Country

Anti-dumping duty

People's Republic of China

Vietnam

19,4 %

16,8 %

The release for free circulation in the Community of the product referred to in paragraph 1 shall be

4.
subject to the provision of a security, equivalent to the amount of the provisional duty.

5.

Unless otherwise specified, the provisions in force concerning customs duties shall apply.

6. Member States and the Commission shall cooperate closely to ensure compliance with this Regulation,
inter alia, with regard to a surveillance system.

Article 2

Without prejudice to Article 20 of Regulation (EC) No 384/96, interested parties may request disclosure of
the essential facts and considerations on the basis of which this Regulation was adopted, make their views
known in writing and apply to be heard orally by the Commission within one month of the date of entry
into force of this Regulation.

Pursuant to Article 21(4) of Regulation (EC) No 384/96, the parties concerned may comment on the
application of this Regulation within one month of the date of its entry into force.

This Regulation shall enter into force on 7 April 2006.

Article 3

Article 1 to 2 of this Regulation shall apply for a period of six months.

1.

2.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 23 March 2006.

For the Commission

Peter MANDELSON
Member of the Commission