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Final Determination - Leather Safety Footwear

OTTAWA, November 27, 2001

File No. 4261-124
Case No. AD/1275

STATEMENT OF REASONS

 

Concerning the making of a final determination of dumping with respect to

LEATHER FOOTWEAR WITH METAL TOE CAPS, ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA, EXCLUDING WATERPROOF FOOTWEAR SUBJECT TO THE FINDING MADE BY THE CANADIAN INTERNATIONAL TRADE TRIBUNAL IN INQUIRY NO. NQ-2000-004

 

DECISION

Pursuant to paragraph 41(1)(a) of the Special Import Measures Act, the Commissioner of Customs and Revenue has today made a final determination of dumping concerning leather footwear with metal toe caps, originating in or exported from the People's Republic of China, excluding waterproof footwear subject to the finding made by the Canadian International Trade Tribunal in Inquiry No. NQ-2000-004.

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

Summary

On June 15, 2001, the Commissioner of Customs and Revenue (Commissioner) initiated an investigation into the alleged injurious dumping of leather footwear with metal toe caps, originating in or exported from the People's Republic of China (China), excluding waterproof footwear subject to the finding made by the Canadian International Trade Tribunal (Tribunal) in Inquiry No. NQ-2000-004. The investigation was initiated in response to a complaint filed by the Shoe Manufacturers' Association of Canada (SMAC) of Beaconsfield, Quebec.

On August 14, 2001, the Tribunal made a preliminary determination that the evidence disclosed a reasonable indication that the alleged dumping of the subject goods has caused injury to the domestic industry. A preliminary determination of dumping with respect to the subject goods was made on August 29, 2001.

The investigation continued after the preliminary determination and the Commissioner is satisfied that the margins of dumping are not insignificant. Accordingly, the Commissioner has made a final determination of dumping in accordance with paragraph 41(1)(a) of the Special Import Measures Act (SIMA).

The Tribunal's inquiry concerning the question of injury to the Canadian industry is continuing. Provisional duties will continue to be assessed on importations of the subject goods until the Tribunal issues its finding.

Interested Parties

Complainant

The complainant, SMAC, is located in Beaconsfield, Quebec. There are six Canadian producers of leather safety footwear that support the complaint and all are members of SMAC. The names and addresses of the producers are listed in Appendix 1.

Exporters

The Canada Customs and Revenue Agency (CCRA) identified 73 companies that export the subject goods to Canada.

Importers

The CCRA identified 45 importers of the subject goods.

Background

On May 18, 2001, SMAC filed a formal complaint with the CCRA alleging that its members were being injured as a result of dumped imports of leather footwear with metal toe caps, originating in or exported from China. On May 31, 2001, the CCRA informed SMAC that the complaint was properly documented. On the same date, the government of China was informed of the complaint respecting the alleged dumping.

On June 15, 2001, the Commissioner initiated a dumping investigation and notified the Tribunal of that decision. The Tribunal subsequently initiated a preliminary injury inquiry to determine whether the evidence disclosed a reasonable indication of injury, retardation or threat of injury caused by the dumping of the goods.

On August 14, 2001, the Tribunal concluded that the evidence disclosed a reasonable indication that the alleged dumping has caused injury. On August 29, 2001, the Commissioner made a preliminary determination of dumping with respect to the subject goods pursuant to subsection 38(1) of SIMA.

Product

Product Definition

For the purpose of this investigation the subject goods are defined as:

Leather footwear with metal toe caps, originating in or exported from the People's Republic of China, excluding waterproof footwear subject to the finding made by the Canadian International Trade Tribunal in Inquiry No. NQ-2000-004.

Additional Product Information

Leather footwear with metal toe caps refers to footwear incorporating metal toe caps, to protect the foot from falling objects, in which the material of the upper is leather. The upper is defined as that part of the shoe or boot above the sole. Where the upper is composed of more than one material, classification is determined by the constituent material that has the greatest external surface area, excluding accessories and reinforcements such as eyelets, hooks, etc.

The soles of safety footwear are made predominantly of plastic or rubber but may be made of other materials or combinations of materials. The scope of the safety footwear subject to this investigation is unrestricted in respect of the materials of the sole.

The subject goods may be equipped with steel sole plates and/or other protective components in addition to metal toe caps.

Throughout this document the term "safety footwear" may be used for convenience in referring to the subject goods.

Exclusions

Waterproof footwear with metal toe caps is excluded from this investigation as it is subject to the finding made by the Canadian International Trade Tribunal in Inquiry No. NQ-2000-004.

Classification of Imports

The subject footwear is usually classified under one of the following 10-digit Harmonized System (HS) classification numbers:

  6403.40.00.10 -
Other footwear incorporating a protective metal toe cap with bottoms of rubber or plastic and shafts of leather covering the ankle

6403.40.00.20 -
Other footwear incorporating a protective metal toe cap, other, covering the ankle

6403.40.00.90 -
Other footwear incorporating a protective metal toe cap, other (shoes)

Canadian Industry

At the initiation of the investigation, SMAC identified six producers of safety footwear in Canada. All six producers are members of SMAC.

The CCRA identified three additional companies that may produce safety footwear. These companies are believed to produce non-subject goods, limited quantities of safety footwear or specialized footwear that retails at very high price points.

All of the Canadian producers that support the complaint are listed in Appendix 1.

Canadian Market

Statistical information showing the apparent Canadian market for the years 1997 to 2000 is included in Appendix 2.

Information on the production of subject goods in Canada during this period was obtained from current members of SMAC. For companies no longer producing the subject goods, production was estimated based on general industry knowledge. Specifically, estimates were used for Greb, Inc., H.H. Brown and Kaufman Footwear.

Further details regarding the Canadian market may be found in the Statement of Reasons issued at the time of the preliminary determination of dumping.

The Investigation

The dumping investigation covered all subject goods released from customs' possession into Canada during the period of investigation of June 1, 2000 to May 31, 2001.

Initiation

When the investigation was initiated, Requests for Information (RFIs) were sent to the Chinese government and 20 exporters that represented over 90 per cent of the subject goods imported from China. These RFIs provided an opportunity to submit information so that the Commissioner could form an opinion concerning the domestic market conditions of the safety footwear sector in China. In the past, the CCRA has considered China to be a non-market economy and has determined normal values for dumped imports from China on the basis of sales of like goods in a surrogate country.

Where the goods being investigated are imported from a country with a non-market economy, that is, where the government has a monopoly or substantial monopoly of its export trade and domestic prices are substantially determined by the government, normal values are generally determined on the basis of sales of like goods in a surrogate country with an open market economy.

Generally, the normal value is the price of like goods sold in a surrogate country adjusted to reflect the differences in terms and conditions of sale, in taxation and other differences relating to the price comparability of the goods sold in the surrogate country and the goods sold to the importer in Canada. Alternatively, the normal value may be established based on the aggregate of the cost of production, administrative, selling and all other costs, and profit of like goods in the surrogate country.

Preliminary Determination of Dumping

Cooperation from the companies identified as potential exporters and importers of the subject goods was limited. None of the exporters responded to the CCRA's RFI. Six companies, identified as potential importers, advised the CCRA that they had no imports of the subject goods during the period of investigation. Seventeen companies that had imports during the period of investigation provided the CCRA with acceptable responses.

The government of China provided a response to the CCRA's questionnaire regarding the economic conditions in the footwear sector. This submission was deemed to be incomplete and inconclusive with respect to whether economic reforms have progressed sufficiently such that the footwear sector is no longer operating in non-market economic conditions.

For the purpose of the preliminary determination of dumping, the CCRA maintained its position that the footwear industry in China is operating under non-market conditions.

Section 20 of SIMA is applicable for the determination of normal values when the government of the country of export has a monopoly of its export trade and it substantially determines domestic prices in that industry sector. In such circumstances, normal values are generally based on domestic sales or the full cost of like goods in a surrogate country that operates under market conditions. The CCRA contacted eight producers in a surrogate country (Mexico) in an attempt to obtain the necessary information to establish normal values. None of the producers provided a response.

In the absence of sufficient information from the government of China and the producers in the surrogate countries, normal values were estimated on the basis of the best available information, i.e. information supplied in the complaint.

Normal values were estimated for 13 representative styles of safety footwear that cover the range of the subject goods imported from China during the period of investigation. Those normal values were estimated using Canadian costs of production plus general, selling and administrative expenses and an amount for profit. The Canadian costs were adjusted downward to reflect the lower costs of production in potential surrogate countries.

Based on the estimated normal values, as well as export prices obtained from customs' documents, the CCRA estimated that 93.5 per cent of the volume of imported subject goods was dumped by a weighted average margin of dumping of 31.4 per cent (expressed as a percentage of normal value) or 45.7 per cent (expressed as a percentage of export price).

Final Determination of Dumping

The government of China has not responded to a supplementary RFI issued at the time of the preliminary determination of dumping. Therefore, the CCRA's position that footwear industry in China is operating under non-market conditions remains unchanged. As a result, the CCRA continued its attempts to obtain information from producers in a surrogate country. These requests have yielded no information to date.

At the time of initiation, the questionnaires sent to importers requested information relating to importations of similar goods from countries other than China. This information was requested to determine normal values under paragraph 20(1)(d) of SIMA. Under this section, normal values are determined by using the importers' selling prices in Canada of like goods produced in a third country. From these prices, deductions are made for costs resulting from the importation and sale of the goods, costs related to the preparation of the goods for shipment to Canada and incurred as a result of their shipment to Canada and an amount for the profit of the importer on the sale in Canada.

The above-described methodology could not be used in this case because the volume of like goods purchased by Canadian importers from unrelated suppliers in countries other than China was inadequate as a basis for the determination of normal values.

Normal Values

In the absence of sufficient information to enable the determination of normal values pursuant to section 20 of SIMA, normal values have been determined pursuant to a ministerial specification under section 29 of SIMA. This specification provides that the normal value of the subject goods will be determined on the basis of the export price advanced by 39.4 per cent.

The normal value methodology contained in the ministerial specification resulted from the CCRA's analysis of available information, in the manner described below.

The cost of production and amounts for general, selling and administrative expenses (GS&A) and profit in a surrogate country were estimated for thirteen representative styles of subject footwear. The cost of production in Canada (material, labour and factory overhead) of these models was adjusted to reflect lower costs of production in a surrogate country. Specifically, Canadian labour costs were reduced by 90 per cent, material costs by 5 per cent and factory overhead costs by 75 per cent. A gross margin of 25 per cent of the total production cost was added to cover general selling and administrative expenses and an operating profit of approximately 10 per cent.

The aggregate of the cost of production, general selling and administrative expenses and profit, determined as described above, was compared with the export price of the goods that entered Canada during the period of investigation, in order to determine the margin of dumping of the goods.

While normal values determined in the manner described above have been used for the purpose of a final decision, this aspect will be further reviewed if the Tribunal issues a finding of material injury. In that event, the CCRA will continue its efforts to obtain sufficient information so that normal values can be determined in a surrogate country.

Export Prices

Export prices were based on importers' declared purchase prices, less all costs, charges and expenses resulting from the exportation of the goods, pursuant to section 24 of SIMA.

Margins of Dumping

The CCRA's review of imports from China during the period June 1, 2000 to May 31, 2001, reveals that 90.9 per cent of the volume of subject goods imported was dumped. The margins of dumping of the dumped goods ranged from .01 to 720.7 per cent, expressed as a percentage of export price. The weighted average margin of dumping is 39.4 per cent, expressed as a percentage of export price. These margins of dumping are not considered to be insignificant as they are above the 2% threshold as defined in subsection 2 (1) of SIMA.

The margin of dumping expressed as a percentage of export price (39.4 per cent), will be used to advance export price in order to determine the normal value of subject goods imported subsequent to a positive injury finding by the Tribunal.

Volume of Dumped Imports

For purposes of the preliminary determination of dumping, the Commissioner has responsibility for determining whether the actual or potential volume of dumped goods is negligible. After a preliminary determination of dumping, the Tribunal assumes this responsibility. In accordance with subsection 42 (4.1) of SIMA, the Tribunal is required to terminate its inquiry in respect of any goods if the Tribunal determines that the volume of dumped goods from a country is negligible.

Representations

During the investigation, certain Canadian importers raised concerns regarding the normal value estimates provided by Canadian industry and used by the CCRA for the purpose of the preliminary determination of dumping. Specifically, these importers suggested that the estimated normal values were overstated and unrealistic.

Subsequent to the preliminary determination of dumping, the CCRA requested that Canadian producers provide additional details and elaboration concerning the normal value estimates contained in the complaint. The additional information submitted in response to this request was carefully analyzed and was subsequently verified at the premises of the Canadian producers that had supplied the normal value estimates. The estimated normal values were then adjusted, if required.

As a result of this further process of review, verification and adjustment, the CCRA is satisfied that the estimated normal values are fair and representative.

Also with respect to normal value, counsel for one importer proposed an alternate methodology for the determination of normal value for one particular exporter. That proposal involved a constructed cost approach, in which material costs would be based on world market prices and other costs, general, selling and administrative expenses and profit would be supplied by or verified by an international accounting firm.

Guidance on the use of non-government experts in conducting anti-dumping investigations is found in Annex 1 of the WTO Anti-dumping Agreement. Paragraph 2 of Annex 1 provides that this shall occur only in exceptional circumstances.

Decision

Based on the results of the investigation, the Commissioner is satisfied that the subject goods have been dumped and that the margin of dumping is not insignificant.

On this date, pursuant to paragraph 41(1)(a) of SIMA, the Commissioner has made a final determination of dumping with respect to leather footwear with metal toe caps, originating in or exported from the People's Republic of China, excluding waterproof footwear subject to the finding made by the Canadian International Trade Tribunal (Tribunal) in Inquiry No. NQ-2000-004.

Future Action

The Canadian International Trade Tribunal's (Tribunal) inquiry concerning the question of injury to production in Canada is continuing. The Tribunal will issue its finding by December 27, 2001.

Subject goods imported during the provisional period will continue to be assessed provisional duty as determined at the time of the preliminary determination of dumping. The provisional period began on August 29, 2001, the date of the preliminary determination, and will end on the date the Tribunal issues it's finding. For further details on the application of provisional duties, refer to the Statement of Reasons issued at the time of the preliminary determination of the investigation which is available on the CCRA internet web site at: www.ccra-adrc.gc.ca/sima.

If the Tribunal finds that the dumped goods have not caused injury and are not threatening to cause injury, all proceedings relating to this investigation will be terminated. In this situation, all provisional duty or security posted by importers will be returned and future imports will not be subject to anti-dumping duties.

If the Tribunal finds that the dumped goods have caused injury, the CCRA will finalize the anti-dumping duty payable on subject goods released from customs' possession during the provisional period pursuant to section 55 of SIMA. If the provisional duty paid is in excess of the final amount of anti-dumping duty payable, the excess duty paid will be refunded. Imports released from customs' possession after the date of the Tribunal's finding will be subject to anti-dumping duty equal to the margin of dumping. If anti-dumping duty is payable, such duty is hereby demanded pursuant to section 11 of SIMA.

If the Tribunal finds that the dumped goods have threatened to cause injury, except for the fact that provisional duty was applied, anti-dumping duty will be assessed on the subject goods imported during the provisional period. If the Tribunal finds that the dumped goods threaten to cause injury, and the finding does not cover the provisional period, all provisional duties collected will be refunded and security posted will be discharged. Imports released from customs after the date of the Tribunal's finding will be subject to an anti-dumping duty equal to the margin of dumping. If anti-dumping duty is payable, such duty is hereby demanded pursuant to section 11 of SIMA.

Publication

Notice of this final determination of dumping is being published in the Canada Gazette pursuant to paragraph 41(3)(a) of SIMA.

Information

This Statement of Reasons is available upon request or from the CCRA's Web site at the address below. For further information, please contact Mr. Ron McTiernan or Mr. Rand McNally as follows:

Mail -
Canada Customs and Revenue Agency
Anti-dumping and Countervailing Directorate
19^th Floor, Sir Richard Scott Building
191 Laurier Avenue West
Ottawa, Ontario K1A 0L5
Canada

Telephone -
Ron McTiernan: (613) 954-7271
Rand McNally: (613) 954-1663

Telefax -
(613) 954-2510

e-mail -

Ron.McTiernan@ccra-adrc.gc.ca
Rand.McNally@ccra-adrc.gc.ca

Web site -
www.ccra-adrc.gc.ca/sima

Alice Shields
Director General
Anti-dumping and Countervailing Directorate

Appendix 1

CANADIAN MANUFACTURERS OF SAFETY FOOTWEAR

G.A. Boulet, Inc.
501 rue St. Gabriel
St. Tite, Quebec
G0X 3H0

Canada West Shoe Manufacturing Company
1250 Fife Street
Winnipeg, Manitoba
R2X 2N6

L.P. Royer Inc.
712 rue Principale
Lac Drolet, Quebec
G0Y 1C0

S.T.C. Footwear
10 - 100 rue Colbert
Ville d'Anjou, Quebec
H1J2J8

Tatra Shoe Manufacturing Inc.
330 Ramsay Drive
Dunnville, Ontario
N1A 2X1

Terra Footwear Limited
5409 Eglinton Avenue West
Suite 103
Toronto, Ontario
M9C 5K6

Appendix 2

APPARENT CANADIAN MARKET

	VOLUME (PAIRS)
	1997	%	1998	%	1999	%	2000	%
People's Republic of China 1	694,470	26.6%	909,756	33.1%	940,547	36.0%	1,317,887	46.0%
Imports from other countries	115,418	4.4%	175,705	6.4%	81,115	3.1%	87,814	3.1%
Total Imports	809,888	31.0%	1,085,461	39.5%	1,021,662	39.1%	1,405,701	49.1%
Domestic Production	1,803,000	69.0%	1,667,000	60.6%	1,592,000	60.9%	1,458,000	50.9%
Total Apparent Canadian Market	2,612,888	100%	2,752,461	100%	2,613,662	100%	2,863,701	100%
1 Note: Volume for the People's Republic of China has been adjusted to account for 10% non-subject goods imported under tariff number 6403.40.00.10