ARCHIVED - Statement of Reasons

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OTTAWA, June 21, 2002

4366-8
AD/1067

Concerning a determination pursuant to subsection 76.03(7) of the Special Import Measures Act regarding

CERTAIN WATERPROOF RUBBER FOOTWEAR ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA

DECISION

On June 7, 2002, pursuant to subsection 76.03(7) of the Special Import Measures Act, the Commissioner of Customs and Revenue determined that the expiry of the order of the Canadian International Trade Tribunal made on October 20, 1997, in Review No. RR-97-001, concerning certain waterproof rubber footwear, originating in or exported from the People's Republic of China, is likely to result in the continuation or resumption of dumping of the goods.

This Statement of Reasons is also available in French.
Cet énoncé des motifs est également disponible en français.

SUMMARY

On February 7, 2002, the Canadian International Trade Tribunal (Tribunal), pursuant to subsection 76.03(3) of the Special Import Measures Act (SIMA) initiated an expiry review of its order made on October 20, 1997, in Inquiry No. RR-97-001, concerning certain waterproof rubber footwear, originating in or exported from the People's Republic of China (China). The purpose of the expiry review is to determine whether the order should be continued or rescinded. The finding is scheduled to expire on October 19, 2002.

As a result of the Tribunal's decision, the Commissioner of Customs and Revenue (Commissioner) commenced an investigation on February 8, 2002, to determine whether the expiry of the Tribunal's order is likely to result in the continuation or resumption of dumping of the goods. On the basis of the information available, the Commissioner determined on
June 7, 2002, that the expiry of the order is likely to result in the continuation or resumption of dumping of the goods.

The Tribunal will now conduct an inquiry to determine whether the expiry of the finding in respect of the goods is likely to result in injury or retardation to the domestic industry. The Tribunal will make a decision on this matter by October 19, 2002. If the Tribunal determines that the expiry of the order is likely to result in injury or retardation, the finding will be continued. If the Tribunal determines that the expiry of the finding is unlikely to result in injury or retardation, the finding will be rescinded.

BACKGROUND

A dumping investigation respecting certain waterproof rubber footwear was initiated on May 22, 1981 and involved Hong Kong, Malaysia, Yugoslavia and China. It led to a future injury finding issued by the Anti-dumping Tribunal on April 23, 1982 respecting all subject goods. This case was reviewed and reaffirmed without amendment on October 22, 1987 and October 21, 1992, in conjunction with another footwear finding of May 25, 1979. Then, on October 20, 1997, during the course of the last Tribunal review, the case was reaffirmed only with regard to subject goods from China. The other countries were not included in this order as there was no evidence showing the likelihood of resumed dumping.

Injury findings and orders expire five years from the date of the finding or order unless the Tribunal determines that the order or finding should be continued. On December 19, 2001, the Tribunal issued a notice of expiry of the order concerning certain waterproof rubber footwear. The notice of expiry invited opinions from persons or governments requesting or opposing the initiation of an expiry review. On February 7, 2002, the Tribunal initiated a review of the above-mentioned order as it was of the opinion that such a review was warranted. Notice of this action was provided to the Commissioner.

On February 8, 2002, the Commissioner initiated a review to determine whether the expiry of the order is likely to result in the continuation or resumption of dumping of the goods. In accordance with the Anti-dumping and Countervailing Directorate's administrative guidelines on the conduct of expiry review investigations, interested persons including Canadian producers, importers, exporters and foreign governments were invited to provide information they considered relevant to the decision.

Our period of review was the three years, 1999, 2000 and 2001.

PRODUCT INFORMATION

DEFINITION

Certain waterproof rubber footwear subject to the Commissioner's review is defined as:

"waterproof rubber footwear constructed wholly or in part of rubber, including thermoplastic rubber, worn over the foot or shoe, with or without liners, linings, fasteners, or safety features, originating in or exported from the People's Republic of China, excluding the following:

• Riding boots;
• Snowmobile boots;
• Rubber-bottom, leather-top boots;
• Safety footwear, defined as footwear which meets safety standards established by the Canadian Standards Association; and
• Waterproof footwear made of polyvinyl chloride (PVC)."

The range of rubber footwear may be categorized into the following groups:

• Low rubbers of light or heavy construction which may have such features as nylon vamp, net lining and stretchable rubber;
• Overshoes 6 to 10 inches (15 to 25 cm) in height, which may include zippers, straps, buckles, nylon tops, fleece or net linings, etc.; and
• All-rubber boots of various heights, with 12 inch and 15 inch heights being the most popular. Included in this latter group are red sole rubber boots, city boots, rain boots, hunting and fishing boots, hip and chest waders.

PRODUCTION PROCESS

There are various ways to manufacture the subject goods. They may be manufactured by the traditional lay-up or vulcanization process, by moulding processes, such as injection moulding or compression moulding, or by other processes.

The lay-up or vulcanization process requires the preparation of a rubber compound that is calendered into sheeting. Footwear parts are then cut from the sheets of rubber, laid up on forms and secured with rubber cement. The laid-up footwear is then vulcanized in an oven so that the rubber is irreversibly cured. This manufacturing process is capable of producing a wide range of rubber footwear, including specialty items, and its use is economically advantageous for short production runs.

In the injection moulding process, a hot thermoplastic rubber compound is injected under high pressure into steel moulds installed in moulding machines. When cooled, the product is removed from the mould, trimmed and packed for shipment.

In the compression moulding process, pieces or granules of rubber are put into a mould covered by a textile lining where they are simultaneously formed by the application of heat and pressure. This process of manufacturing moulded footwear is most cost efficient when producing large volumes of footwear.

The subject goods may also be manufactured in a combination method using one of the aforementioned processes and the stitched product process. In this method, waterproof bottoms are attached to the tops that are made of leather, textiles or other materials by a simple stitching process.

CLASSIFICATION OF IMPORTS

The subject goods are generally classified under the following Harmonized System numbers:

• 4015.90.90.00
• 6401.10.19.00
• 6401.91.19.00
• 6401.92.91.10
• 6401.92.91.90
• 6404.19.90.91
• 6404.19.90.92
• 6404.19.90.93

PARTICIPANTS

Participants of expiry reviews are divided into two broad categories, "parties to the proceeding" and "interested persons". Both groups are allowed to file any information that they feel pertinent and may file case arguments and reply submissions. The main difference between the two groups is that the "interested persons" are not permitted access to confidential or protected information.

"Parties to the proceeding" are persons who have a direct interest in the outcome of the proceeding and actively participate in the proceeding. In dumping expiry reviews, only exporters, importers and Canadian producers are considered parties to the proceeding.

At the onset of this review, the Tribunal distributed a notice of the initiation of the expiry review and an expiry review schedule to importers, exporters, associations, Canadian producers and the Government of China. Any person or government having an interest in the Commissioner's investigation was invited to provide a submission to the Commissioner containing information that they deemed relevant to the issue. Expiry review questionnaires were also sent to all known exporters, importers and Canadian producers. Specifically, 53 exporters, 117 importers and 6 Canadian producers were notified.

No exporters provided responses to the questionnaires and only two importers, Mark's Work Wearhouse and 3727483 Canada Inc., provided submissions. Submissions were received from 6 Canadian producers, however, representing more than 95 per cent of all Canadian production of like goods. The producers are Acton International Inc., Baffin Inc., Genfoot Inc., Les Chaussures Règence Inc., Rallye Footwear Inc. and Chaussures Yeti Inc. They are represented by the
Shoe Manufacturers' Association of Canada (SMAC).

CASE ARGUMENTS

In the Commissioner's investigation, all parties to the proceeding and interested persons may submit case arguments in writing regarding the likelihood of continued or resumed dumping if the finding is permitted to expire. As well, all parties to the proceeding and interested persons may present reply submissions or rebuttals in response to case arguments made by other parties to the proceeding and other interested persons. Arguments and reply submissions must be based on the information that was before the Commissioner on the date the record closed, March 28, 2002.

Only one case argument, on behalf of SMAC, was received and no rebuttals were submitted.

CONSIDERATION AND ANALYSIS

Subsection 76.03(7) of SIMA requires the Commissioner to determine whether the expiry of the order or finding in respect of the goods of a country or countries is likely to result in the continuation or resumption of dumping of the goods. In making his determination, the Commissioner may consider any factor specifically identified in paragraphs (a) to (i) of subsection 37.2(1) of the Special Import Measures Regulations as well as any other factors that are relevant in the circumstances.

An analysis of the factors pertinent to this investigation follows:

1. Whether there has been dumping of goods while a finding or order in respect of the goods is in effect and, if applicable, (i) the period during which the dumping occurred, (ii) the volume and prices of the dumped and non-dumped goods, (iii) the margin of dumping, and (iv) for non-dumped goods, the amount by which the export prices exceed the normal values of the goods.

Evidence:

The waterproof rubber footwear under review is included in eight ten-digit Harmonized System (HS) classification numbers, as have been provided. Best estimates of imports from China were derived from yearly import statistics using only the four-digit 6401 HS code which covers the subject goods. Only 20 per cent of the goods covered by this four-digit code are not subject goods.

Appendix A provides the volume of all imports of waterproof rubber footwear from China under the 6401 HS code as well as the volume of the subject goods for a three-year period, from 1999 to 2001. These statistics show that although the total volume of all footwear decreased from 83,802 pairs in 1999 to 33,007 pairs in 2001, the volume of subject goods increased from 3,033 pairs in 1999 to 22,839 pairs in 2001. Accordingly, the data discloses that the volume of subject goods increased from 3.62 per cent of all imports in 1999 to 69.19 per cent of all imports in 2001.

Similarly, for this same period, Appendix A provides the value of all imports of footwear from China under the 6401 HS code as well as the value of the subject goods. Although these statistics show a slight decrease in the value of all imports from $475,910.67 Cdn. in 1999 to $418,976.00 Cdn. in 2001, the value of subject goods increased from $26,403.20 Cdn. in 1999 to $249,480.00 Cdn. in 2001. Hence, on a value basis, the subject goods increased from 5.55 per cent of all imports in 1999 to 59.55 per cent in 2001.

Throughout this three-year period, anti-dumping duty was assessed by means of a Ministerial Specification, pursuant to section 29 of SIMA, equal to 74 per cent of the selling prices to Canada. A Ministerial Specification is used when normal value cannot be determined under the usual methods as information has not been provided or is not available.

Analysis:

Before analyzing the impact of these statistics, it should be noted that part of the increase in volume is due to importers previously declaring the subject rubber footwear as plastic footwear to avoid anti-dumping duty. With a finding against plastic footwear coming into force in 2000, the CCRA found additional shipments of rubber footwear that had been misclassified as plastic footwear. These additional entries contributed to the reported increase of the import volumes of goods subject to this review in 2000 and 2001.

Having said that, these statistics show that, from 1999 to 2001, despite the high anti-dumping duties that were applied, subject import volumes increased by some 653 per cent (from 3,033 to 22,839 pairs). One would have assumed that the 74 per cent anti-dumping duty would have resulted in a substantial decrease in subject imports. As this was not the case, it does suggest that the footwear must have been sold to Canada at a price low enough to allow for the recovery of the 74 per cent duty and remain competitive in the Canadian market.

In summary, the statistics demonstrate that this order has not deterred the exporters from shipping subject goods to Canada.

1. The performance of the exporter, foreign producers, brokers and traders including, where applicable, in respect of production, capacity utilization, costs, sales volumes, prices, inventories, market share, export and profits.

Evidence:

No submissions were received from the exporters in response to our request for information, so first hand information concerning their current performance was not provided.

The case arguments, submitted by SMAC did, however, provide information respecting Chinese imports into two other foreign markets, the European Communities and the United States of America (United States). This, coupled with the Canadian import statistics, detailed in Appendix A, provides valuable insight into the production, export and subsequent sale of Chinese subject goods.

SMAC's statistics are included in Appendix B. SMAC tabulated imports of subject goods into the European Communities using three specific eight-digit HS codes under 6401. Imports increased from 3,054,394 pairs in 1998 to 6,083,787 pairs in 2000. This represents a 99 per cent increase over this three-year period.

Similarly, SMAC reported imports of subject goods into the United States using four six-digit HS codes under 6401. Imports increased from 4,707,340 pairs in 1998 to 6,817,657 pairs in 2001. This represents a 45 per cent increase over this four-year period.

It should be noted that no anti-dumping findings are currently in place in the United States or the European Communities with regard to subject goods from China. Imports into the United States are, however, subject to a customs tariff rate of 37.5 per cent while imports into the European Communities are subject to a rate of 17.0 per cent.

Analysis:

Our import statistics, reviewed in conjunction with those presented by SMAC, indicate that Chinese exports have increased since 1998. During the course of the last Tribunal review, in 1997, Chinese representatives disclosed that the production and capacity of the subject goods were expected to decrease in the following years as many factories would either close or move production facilities to other Southeast Asian countries. Since no information regarding plant closures or decreased production was received and exports of subject goods from China have increased, it appears that these predictions were incorrect.

The fact that imports of footwear into the European Communities and the United States from China have increased substantially since 1998 supports the conclusion that production of these goods continues to be strong in China. It also highlights the fact that Chinese exporters can make major inroads into foreign markets, such as Canada, where there is dumping protection as well as into countries where high tariffs are in place.

In summary, the removal of the protection currently in place for Canadian producers would likely result in increased volumes of dumped Chinese footwear in the Canadian market.

1. The likely future performance of the exporters, foreign producers, brokers and traders on the basis of factors, where applicable, such as production, capacity utilization, sales volumes, prices, inventories, market share, exports and profits.

Evidence:

Import statistics indicate an increase in subject imports into this country as well as into two other foreign markets, the European Communities and the United States. Estimates of normal values and export price prepared by SMAC led them to conclude that the footwear imported into the United States is entering that country at dumped prices.

Again, it should be pointed out that substantial import duties in the United States and anti-dumping duties in Canada have not deterred imports.

Analysis:

It is expected, based on past trends, that import volumes of the subject goods into Canada will continue to increase in the future. Should this order be allowed to expire and the 74 per cent anti-dumping duty eliminated, it would follow that subject imports would increase and that their corresponding selling prices would decline substantially.

As stated earlier, the increased imports of Chinese footwear into the European Communities and the United States demonstrates the propensity of Chinese exporters to penetrate foreign markets where there is no dumping protection in place.

While no submissions were received from any exporters, there seems to be sufficient production capacity in China to have increased shipments. There is no reason to believe that there is not sufficient excess capacity to increase exports even more.

1. The imposition of anti-dumping or countervailing measures by authorities of Canada in respect of similar goods while an order or finding in respect of the goods was in effect.

Evidence:

There are currently three other footwear injury findings in existence, all of which involve China. They include women's leather and non-leather boots, waterproof footwear and bottoms of plastic or rubber, and leather safety footwear with metal toe caps.

The waterproof footwear finding that came into force in 2000 involves primarily plastic footwear. Although this finding involves goods that are very similar in nature to the goods subject to this expiry review, the finding was necessary because exporters, in part, moved to alternate materials, i.e. plastic vs. rubber, of the subject goods to avoid the anti-dumping duty imposed by the original finding.

All three cases are enforced by means of Ministerial specifications. The amounts of anti-dumping duties applied as a percentage of their FOB selling prices to Canada follow:

Products	Amount of Anti-dumping Duty
Women's leather and non-leather boots	29 %
Waterproof footwear and bottoms of plastic or rubber	49 %
Leather safety footwear with metal toe caps	39,4 %

Further, on April 26, 2002, subsequent to the initiation of this expiry review, another new footwear investigation was initiated with regard to certain waterproof footwear and waterproof footwear bottoms from Hong Kong, China (Hong Kong); Macao, China (Macao); and Vietnam. It is alleged in the complaint for that case, that in a new attempt to circumvent the findings in place, some Chinese exporters are shipping their goods through these other countries or have moved production to these countries.

The complainant for all five footwear cases is SMAC.

Analysis:

Footwear from China continues to hold a steady share of the Canadian market despite the findings that are in place. In addition, Chinese exporters have been alleged to be shipping subject goods through other countries such as Macao, Hong Kong and Vietnam and avoiding the findings altogether.

The fact that the industry has brought five dumping complaints to the CCRA and has obtained a positive finding in the four cases that have been before the Tribunal, clearly demonstrates that Chinese exporters of footwear have a track record of dumping the subject goods and other footwear products into the Canadian market and injuring Canadian industry.

1. Any other factors that are relevant in the circumstances.

Evidence:

The statistics shown in Appendix C demonstrate that, with respect to all waterproof footwear, China's share of the Canadian market fell from 700,000 pairs in 1999 to 350,000 pairs in 2001. At the same time, however, imports from Macao, Vietnam and Hong Kong increased by virtually the same amount.

With footwear from China continuing to make its way into the Canadian market, the impact on the industry has been detrimental. In 1997, the Canadian industry for this product consisted of nine producers. Since that time, four firms have closed their operations. On a positive note, a Canadian producer of women's footwear purchased assets of one of the failed firms and began producing waterproof footwear in Canada.

Analysis:

Canadian industry has alleged that Chinese exporters have moved to shipping the subject goods through other countries to avoid anti-dumping measures. The circumvention of this finding is of major concern to this industry. Despite the protection that is currently in place, imports from China continue to make inroads into the Canadian market, to the point that four Canadian firms have been forced to close their doors. Letting this finding expire would likely open the Canadian market to a flood of low priced footwear from China and cause even more damage to the Canadian industry.

The statistics in Appendix C that demonstrate that imports from Macao, Hong Kong and Vietnam increased by an amount comparable to the decrease in shipments from China, appear to support the industry's allegations that goods from China are finding their way into Canada through other countries.

Certainly, if this order is allowed to expire, any finding as a result of the new investigation currently underway would likely have little impact, as exporters could simply return to shipping their goods directly from China.

SUMMARY OF ANALYSIS

The aforementioned analysis presents convincing arguments in support of the decision that the expiry of the Tribunal's order with regard to certain waterproof rubber footwear would likely result in the continued or resumed dumping of the subject goods.

CONCLUSION

Having considered the factors described above, the Commissioner has determined that the expiry of the Tribunal's order concerning certain waterproof rubber footwear, originating in or exported from the People's Republic of China, is likely to result in the continuation or resumption of dumping of the goods.

FUTURE ACTION

The Tribunal will now consider whether the expiry of the finding is likely to result in injury or retardation to the domestic industry.

If the Tribunal determines that the expiry of the finding is likely to result in injury or retardation, the finding will be continued, with or without amendment. If this is the case, the CCRA will continue to levy anti-dumping duties on importations of subject goods where appropriate.

If the Tribunal determines that the expiry of the finding is unlikely to result in injury or retardation, the finding will be rescinded. Anti-dumping duties would no longer be levied on importations of the goods in question after the date of the Tribunal's order rescinding the finding.

INFORMATION

For further information, please contact the officers identified below as follows:

Mail
Canada Customs and Revenue Agency
Anti-dumping and Countervailing Directorate
100 Metcalfe Street, 11^th Floor
Ottawa, Ontario
Canada
K1A 0L8 

Telephone
Mary Yarn Donais: (613) 952-9025
Barry Desormeaux: (613) 954-7183

Telefax
Mary Yarn Donais: (613) 952-9025
Barry Desormeaux: (613) 954-7183

Website
www.cbsa-asfc.gc.ca/sima-lmsi/

Denis Lefebvre
Assistant Commissioner
Customs Branch

Ottawa, June 21, 2002
File No. 4366-8

APPENDIX A

Volume and Value of Imports of Waterproof Rubber Footwear into Canada

Volume of Imported Goods

Period	Volume (in Pairs) of all Imports (Subject and Non-Subject Goods)	Volume (in Pairs) of Subject Goods	Volume of Dumped Goods as % of all Imports
1999	83 802	3 033	3,62 %
2000	23 441	6 930	29,56 %
2001	33 007	22 839	69,19 %

Value of Imported Goods

Period	Value of all Imports in Cdn. $ (Subject and Non-Subject Goods)	Value of Subject Goods In Cdn. $	Value of Dumped Goods as % of all Imports
1999	475 910,67 $	26 403,20 $	5,55 %
2000	321 182,00 $	60 991,00 $	18,99 %
2001	418 976,00 $	249 480,00 $	59,55 %

Note:
These statistics are based on imports using the four-digit 6401 Harmonized System Code.

APPENDIX B

Exports of Waterproof Footwear from China to the European Communities and the United States of America

Imports of Waterproof Rubber Footwear from China into the European Communities

Year	Pairs	Percentage Change
1998	3 054 394
1999	4 963 093	+62,5 %
2000	6 083 787	+22,6 %

Note:

These statistics are based on three specific eight-digit HS codes under 6401.

Imports of Waterproof Rubber Footwear from China into the United States of America

Year	Pairs	Percentage Change
1998	4 707 340
1999	4 694 157	-28 %
2000	5 624 607	+20 %
2001	6 817 657	+36 %

Note:

1. These statistics are based on four six-digit HS codes under 6401.
2. Statistics provided by the Shoe Manufacturers' Association of Canada

APPENDIX C

Estimated Imports of Waterproof Footwear into Canada

Volume in pairs	1999	2000	2001
China	700 000	725 000	350 000
HK/Macao/Vietnam	0	55 000	400 000
Other Countries	150 000	150 000	150 000

Note: