Page last updated at 13:59 GMT, Friday, 24 February 2006

These shoes were made for dumping

By Evan Davis
BBC economics editor

Workers sorting out Chinese shoes ready for sale
Chinese shoe exports will be hit with duties of almost 20%
Dumped is such a horrible word.

The suggestion that countries are dumping shoes here brings to mind the image of a pair of smelly old trainers being discarded down by the canal.

But in trade terms, dumping has traditionally referred to selling things below cost - distorting a market with your excess, subsidised production (the kind of thing the European Union does with sugar exports, for example).

For good reason, governments are against that kind of dumping and world trade rules allow governments to stop it.

European Trade Commissioner Peter Mandelson says China and Vietnam are dumping shoes in the European Union.

In response he has proposed that, from April, the EU starts charging duties on certain shoe imports of almost 20%.

These days we have to be very careful when we hear accusations of dumping. The term is being applied to activities far less insidious than those associated with the traditional meaning of the word.

Shoe sleuths

Let's examine what the EU does mean when it says China and Vietnam are dumping shoes.

Aren't we lucky that so many foreigners want to sell their stuff to us at a loss?

It has employed about 20 people for nine months investigating the shoe trade.

First, they established that they didn't know how much it costs to produce shoes in China and Vietnam or whether they are sold at a loss.

Over there, the accounts are all over the place - the rents they pay may be free, the financial backing sometimes lent by state banks.

You just can't tell whether the shoes are too cheap or not.

So having established they don't know, EU sleuths picked another country to look at.

The shoes from Brazil

They chose Brazil, and flew teams of people over there to examine the cost of making shoes.

In the end, they established that China and Vietnam are selling shoes below the level it costs to make them in Brazil.

So they have deemed that shoes from China and Vietnam are being dumped. In other words, if you undercut Brazil then you must be dumping.

This is referred to as the "analogue-country" method of investigation.

Maybe they are dumping, but I can see an alternative explanation.

A Chinese worker on a shoe production line
The EU doesn't know how much it costs to make Chinese shoes

Vietnam has a per capita income a third of Brazil's, and China is far poorer too.

So maybe their shoes are cheaper than Brazil's simply because they're willing to work at lower wages. Maybe that's how they compete.

Who knows if I'm right? The wages in Vietnam don't enter any EU calculation. The real investigation was done in Brazil.

Disciples of anti-dumping

In essence, anti-dumping investigations have become quite an art.

They've also become the favourite way for governments to make selective interventions into trade.

Europe is by no means the most intense user of anti-dumping rules. But on average, over the last decade, it has launched a new investigation every 12 days or so.

All one can say is, aren't we lucky that so many foreigners want to sell their stuff to us at a loss?

You'd think they'd prefer to sell it at a profit.

At least we've got the anti-dumping team at the EU to protect us.

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