Anti-dumping and Countervailing Program

Preliminary Determination - Leather Safety Footwear

OTTAWA, August 29, 2001

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

STATEMENT OF REASONS

Concerning a preliminary determination of dumping pursuant to subsection 38(1) of the Special Import Measures Act regarding

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 subsection 38(1) of the Special Import Measures Act, the Commissioner of Customs and Revenue has today made a preliminary 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 receiving notice of the investigation, the Tribunal started its preliminary injury inquiry. 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.

As a result of the Canada Customs and Revenue Agency's (CCRA) preliminary investigation, the Commissioner is satisfied that the subject goods have been dumped, that the margins of dumping are not insignificant and that the volume of dumped goods is not negligible. Accordingly, the Commissioner has made a preliminary determination of dumping in accordance with subsection 38(1) of the Special Import Measures Act (SIMA).

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.

The share of domestic production of subject goods held by the six SMAC members that support this complaint increased from approximately 50 per cent in 1997 to approximately 65 per cent in 1999. Since then, three other producers have closed their production facilities or are in the process of doing so. As such, the six producers supporting the complaint are expected to account for over 95 per cent of Canadian production in 2002.

Exporters

During the preliminary stage of the investigation, the CCRA identified 73 companies that may be exporting the subject goods to Canada.

Importers

During the preliminary stage of the investigation, 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 and informed the government of China 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 into whether the evidence discloses 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.

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 order made in the Canadian International Trade Tribunal 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 which 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 also produce leather safety footwear. Chaussures Vercorp Inc., St-Bernard-de-Dorchester, Quebec, produces leather safety footwear in limited quantities. The Dayton Shoe Company, Vancouver, BC, produces highly specialized footwear with steel toe caps which is used in the fire fighting and mining industries. These products retail at very high price points and do not compete with the goods that are the subject of the complaint. Information received from the complainant indicates that another company, Pol-Ar-Tik (Hichaud, Inc.) is believed to be producing non-subject footwear.

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

At the time of initiation, it was erroneously reported that Greb, Inc. had ceased producing safety footwear in Canada and had begun supplying the Canadian market with 'Kodiak' brand footwear manufactured in China and by other Canadian producers. In fact, Greb, Inc. ceased operations completely and sold the rights to the 'Kodiak' brand name to another firm which operates under the name The Kodiak Group Inc. This latter company has been supplying the Canadian market with 'Kodiak' brand safety footwear produced in Canada or imported from China.

Canadian Market

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

Information on domestic production of subject goods in Canada during this period was obtained from current members of SMAC. For those companies that are 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.

SMAC was able to obtain specific import data as tariff numbers are specifically provided for the subject goods. SMAC determined the quantity of imported subject goods by means of import statistics from Statistics Canada reports based on the 10-digit HS tariff numbers for goods which fall within HS tariff numbers 6403.40.00.20 and 6403.40.00.90.

At the initiation of the investigation, the CCRA requested all importers to provide the total volume and value of subject goods imported from China during the period June 1, 2000 to May 31, 2001. Based on a review of the responses received, internal reports and import documents, the CCRA is of the opinion that SMAC's estimate of the total volume of imports is reasonable.

As indicated in Appendix 2, the domestic producers' share of the Canadian market has decreased from approximately 69 per cent in 1997 to approximately 51 per cent in 2000. The share of the market held by imports from China has increased from approximately 27 per cent in 1997 to approximately 46 per cent in 2000. Imports of safety footwear from the rest of the world increased from 4.4 per cent in 1997, to 6.4 per cent in 1998, but have since declined to approximately 3.1 per cent in 2000.

The Investigation

All known importers (45) were contacted at the time of initiation and were requested to respond to a questionnaire concerning subject goods imported into Canada during the Period of Investigation (POI), from June 1, 2000 to May 31, 2001. In addition, questionnaires were sent to 20 exporters that represent in excess of 90 per cent of the subject goods imported into Canada during the POI.

In previous anti-dumping investigations, China has been considered a non-market economy country. For the purpose of this investigation, the government and 20 exporters in China were provided the opportunity to demonstrate that the footwear sector in China was operating under market economy conditions.

All parties were requested to provide their complete written responses (confidential and public versions) to the CCRA by July 23, 2001.

Results of the Investigation

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 questionnaire. Six companies that had been identified as potential importers of the subject goods advised the CCRA that they had no imports of the subject goods during the period of investigation. Seventeen companies that had imports during the POI provided the CCRA with acceptable responses.

The government of China provided a formal written 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.

Estimate of the Normal Value

For the purpose of the preliminary determination of dumping, the CCRA is maintaining 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 subject 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 has provided a response to date.

For the purpose of a preliminary determination of dumping, normal values have been estimated based on the best available information, i.e. the information supplied in the complaint filed by SMAC. During the final phase of the investigation, the CCRA will pursue further the possibility of determining normal values in a surrogate country.

Normal values were estimated for 13 different styles of safety footwear. These styles cover the range of the subject goods being imported from China during the period of investigation.

Normal values were estimated using Canadian costs of production plus general, selling and administrative expenses and an amount for profit. The main cost elements include direct material, direct production labour and factory overhead costs including depreciation. These Canadian costs were adjusted to reflect the lower costs of production in countries that might be used as possible surrogates. Labour costs were reduced by 90 per cent to reflect lower wages and benefits. Material costs were reduced by 5 per cent to account for the possibility of large scale purchasing of materials and to account for the use of materials that are of lower quality than those used in Canada. Factory overhead costs were also reduced by 75 per cent.

In addition to the above-noted reductions, a gross margin of 20 per cent of sales, or 25 per cent of the total factory cost was included to cover general, selling and administrative expenses, plus an amount for profit equal to 10 per cent.

Estimate of the Export Price

The export price of goods is generally the exporter's selling price to the importer in Canada, less all costs, charges and expenses resulting from the exportation of the goods.

The CCRA relied on information supplied in importer responses, where an acceptable response was received. In other cases, the CCRA relied on actual data from customs documentation to estimate export prices. In all cases, export prices have been estimated under section 24 of SIMA based upon selling prices to importers, with deductions for freight, brokerage and any other expenses resulting from the exportation of the goods where warranted.

Estimated Margins of Dumping

The margin of dumping is the amount by which the normal value exceeds the export price. For the purpose of the preliminary determination of dumping, an estimate of the margin of the dumping was made by comparing the estimated normal values with the estimated export prices.

The CCRA's review of imports from China during the period June 1, 2000 to May 31, 2001, reveals that 93.5 per cent of the volume of subject goods imported was dumped. The estimated margins of dumping of the dumped goods, ranged from 0.2 to 91.0 per cent, expressed as a percentage of normal value. The weighted average margin of dumping is 31.4 per cent, expressed as a percentage of normal value, or 45.7 per cent, expressed as a percentage of export price.

Summary of Results

Before making a preliminary determination of dumping, the Commissioner must be satisfied that the actual or potential volume of dumped goods is not negligible and that the estimated margins of dumping are not insignificant.

If the volume of dumped goods from a country is less than 3 per cent of the total volume of like goods released into Canada from all countries during the period of investigation, the volume is considered to be negligible. The total volume of all dumped subject goods from China exceeded 90 per cent of the total volume of all safety footwear that was released into Canada from all countries.

The estimated margin of dumping is considered to be insignificant if it is less than 2 per cent of the export price of the goods. In this case, the overall weighted average margin of dumping was 45.7 per cent, expressed as a percentage of the export price.

Representations concerning the Investigation

At the initiation of the investigation, interested parties were invited to file written submissions on the question of the alleged dumping. In response, one submission was filed on behalf of the Kodiak Group Inc., Jones Fair Ltd., H.H. Brown (Canada), CanRun Shoes Imports and ISECO Safety Ltd.

This submission contends that the evidence of dumping contained in SMAC's complaint was incorrect with respect to both export price and normal value. Specifically, the submission contends that the complainant understated the export price of the subject goods. The submission also suggests that SMAC overstated normal value by not taking into consideration the appropriate cost differences between the styles of the imported footwear and the styles of footwear produced by the complainants

At the time of initiation, the CCRA examined export price information declared on customs documentation and found the estimates made by the complainant to be reasonable. While the CCRA took the complainants information into account at initiation, the estimate of the margin of dumping for purposes of this phase of the investigation is based on information obtained from importers and customs documentation.

With respect to the estimates of normal values, the complainant estimated normal values by determining the full costs to produce the imported product in Canada and by making adjustments for differences in costs of production, differences in quality of materials and labour rates in China. As such, the complainant estimated the normal values for the goods under investigation based on estimates of the cost to produce the imported goods in China. This methodology for estimating the normal value is not as described in the representations submitted to the CCRA. The CCRA considers the normal values estimated by the complainant to be reasonable.

Decision

Based on the preliminary results of the investigation, the Commissioner is satisfied that the subject goods have been dumped, that the volume of dumped goods is not negligible, and that the estimated margin of dumping is not insignificant. Accordingly, on August 29, 2001, the Commissioner has made a preliminary determination of dumping pursuant to subsection 38(1) of SIMA.

Provisional Duty to be Imposed

In order to prevent further injury from dumped imports, provisional duty will be applied to all subject goods imported into Canada or after August 29, 2001, as per subsection 8(1) of SIMA.

The amounts of provisional duty are based on the estimated weighted average margins of dumping found during the POI. The duty to be collected during the provisional period is 45.7 per cent of the export price.

Provisional duty is payable by the importer and is normally applied on all subject imports until the day the Tribunal makes its final ruling on the injury matter. However, if the investigation is terminated by the CCRA or there is an undertaking arrangement, provisional duty will no longer be applied to the imported goods.

Importers are required to pay provisional duty in cash or by certified cheque. Alternatively, importers may post security equal to the amount payable.

Importers should contact their regional Customs Office if they require further information on the payment of provisional duty or the posting of security.

Future Action

The CCRA

The CCRA will continue its investigation of the dumping. In this regard, the CCRA will attempt to gather additional information regarding the market-economy status of the PRC and will explore the possibility of establishing normal values in a surrogate country with an open-market economy. By November 27, 2001, the CCRA will make a final decision. If the margin of dumping is insignificant, proceedings will be terminated in whole or in part, and any provisional duty paid or security posted will be returned to the importers, as appropriate.

The Canadian International Trade Tribunal

The Tribunal will now begin its full injury inquiry and conduct a public hearing into the question of injury. The Tribunal is required to issue its final decision not later than December 27, 2001.

If the Tribunal finds that the dumping has not caused injury or is not threatening injury, then proceedings will be terminated and all provisional duties collected will be refunded. If a decision of injury is made, anti-dumping duty will be imposed on imports of the subject goods.

Retroactive Duty on Massive Importations

Under certain circumstances, anti-dumping duty can be imposed retroactively on subject goods imported into Canada in the period starting on the day the investigation was initiated and ending on the day prior to the preliminary determination of dumping.

When the Tribunal conducts its inquiry on material injury to the Canadian industry, it may consider if dumped goods which were imported close to, or after the initiation of the investigation, constitute a massive importation over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there was a massive importation of dumped goods that caused injury, imports of subject goods released by the CCRA on or after June 15, 2001, could be subject to anti-dumping duty.

Undertakings

After a preliminary determination of dumping, the Commissioner may accept undertakings that eliminate the margin of dumping of the goods, or that eliminate the injury caused by the dumping. Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped goods. If undertakings are accepted, the imposition of provisional duty will be suspended.

Exporters could request that the CCRA complete its investigation and that the Tribunal complete its inquiry on the question of injury, notwithstanding the acceptance of undertakings. In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determination of dumping.

The legislation allows all interested parties to make representations concerning any undertaking proposals. The CCRA will maintain a list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax, or e-mail address, to one of the officers listed below. Interested parties may also consult the Internet website noted below for information on undertakings offered in this investigation. A notice will be posted on the website when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.

Publication

Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.

This Statement of Reasons has been provided to persons directly interested in these proceedings. A free copy may be obtained 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

R.A. Séguin
A/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 the Rest of the World	115,418	4.4%	175,705	6.4%	81,115	3.1%	87,814	3.1%
Total Imports	809,888		1,085,461		1,021,662		1,405,701
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