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WATERPROOF FOOTWEAR

Inquiries (Section 42)


CERTAIN WATERPROOF FOOTWEAR ORIGINATING IN OR EXPORTED FROM THE CZECH AND SLOVAK FEDERAL REPUBLIC, THE PEOPLE'S REPUBLIC OF CHINA, THE REPUBLIC OF KOREA AND TAIWAN
Inquiry No.: NQ-92-005

TABLE OF CONTENTS


Ottawa, Thursday, February 4, 1993

Inquiry No.: NQ-92-005

IN THE MATTER OF an inquiry under section 42 of the Special Import Measures Act respecting:

CERTAIN WATERPROOF FOOTWEAR ORIGINATING IN OR EXPORTED FROM THE CZECH AND SLOVAK FEDERAL REPUBLIC, THE PEOPLE'S REPUBLIC OF CHINA, THE REPUBLIC OF KOREA AND TAIWAN

F I N D I N G

The Canadian International Trade Tribunal, under the provisions of section 42 of the Special Import Measures Act, has conducted an inquiry following the issuance by the Deputy Minister of National Revenue for Customs and Excise of a preliminary determination of dumping dated October 7, 1992, and of a final determination of dumping dated December 23, 1992, respecting the importation into Canada of footwear with waterproof plastic bottoms and non-leather tops, waterproof bottoms of rubber or plastic, and waterproof plastic footwear, excluding safety and sports footwear, originating in or exported from the Czech and Slovak Federal Republic, the People's Republic of China, the Republic of Korea and Taiwan.

Pursuant to subsection 43(1) of the Special Import Measures Act, the Canadian International Trade Tribunal hereby finds that the dumping in Canada of the aforementioned goods from the Czech and Slovak Federal Republic, the People's Republic of China, the Republic of Korea and Taiwan has not caused, is not causing and is not likely to cause material injury to the production in Canada of like goods. (Member Gracey dissenting with respect to future injury on footwear with waterproof plastic bottoms and non-leather tops originating in or exported from the Czech and Slovak Federal Republic and the People's Republic of China.)

Michèle Blouin
_________________________
Michèle Blouin
Presiding Member


W. Roy Hines
_________________________
W. Roy Hines
Member


Charles A. Gracey
_________________________
Charles A. Gracey
Member


Michel P. Granger
_________________________
Michel P. Granger

Secretary

The statement of reasons will be issued within 15 days.

Ottawa, Friday, February 19, 1993

Inquiry No.: NQ-92-005

CERTAIN WATERPROOF FOOTWEAR ORIGINATING IN OR EXPORTED FROM THE CZECH AND SLOVAK FEDERAL REPUBLIC, THE PEOPLE'S REPUBLIC OF CHINA, THE REPUBLIC OF KOREA AND TAIWAN

Special Import Measures Act - Whether the dumping of the above-mentioned goods has caused, is causing or is likely to cause material injury to the production in Canada of like goods.

DECISION: The Canadian International Trade Tribunal hereby finds that the dumping in Canada of the aforementioned goods from the Czech and Slovak Federal Republic, the People's Republic of China, the Republic of Korea and Taiwan has not caused, is not causing and is not likely to cause material injury to the production in Canada of like goods. (Member Gracey dissenting with respect to future injury on footwear with waterproof plastic bottoms and non-leather tops originating in or exported from the Czech and Slovak Federal Republic and the People's Republic of China.)

Place of Hearing: Ottawa, Ontario
Dates of Hearing: January 11 and 12, 1993

Date of Finding: February 4, 1993
Date of Reasons: February 19, 1993

Tribunal Members: Michèle Blouin, Presiding Member
W. Roy Hines, Member
Charles A. Gracey, Member

Director of Research: Réal Roy
Research Officers: Paule Couët
Anis Mahli
Francesca Iacurto

Statistical Officers: Nynon Burroughs
Gilles Richard

Counsel for the Tribunal: Gilles B. Legault

Registration and Distribution
Officer: Margaret J. Fisher


Participants: G.P. (Patt) MacPherson
Naila Elfar
for Shoe Manufacturers' Association
of Canada

(Complainant)
and Carlaw Limited
Genfoot Inc.
Kaufman Footwear, Division of
William H. Kaufman Inc.
Chamberlain Phipps Canada Limited,
Vimod Rubber Division
Maple Leaf Shoe Co. Ltd.
Rallye Footwear Inc.
Norimco, Division of Bata Industries Ltd.

(Manufacturers)
Gérard Potvin
General Manager
Hichaud Inc.

(Importer)

Witnesses:

Nathan Finkelstein
President
Shoe Manufacturers' Association of Canada

Anthony J. Carrier
President
Carlaw Limited

Gordon Cook
President
Genfoot Inc.

Stuart I. Snyder, C.A.
Vice-President Finance and Secretary Treasurer
Kaufman Footwear, Division of William H. Kaufman Inc.

John Foglietta, B.B.M., CMA
Vice-President & Chief Financial Officer
Chamberlain Phipps Canada Limited

Robert A. Stamegna
President, Chief Executive Officer
Maple Leaf Shoe Co. Ltd.

Thor Blyschak
President
Rallye Footwear Inc.

Douglas K. Blair
President
Norimco, Division of Bata Industries Ltd.

John W. Vassos
Manager
Footwear Division
Kmart Canada Limited

Gérard Potvin
General Manager
Hichaud Inc.

R.K. Luff
Group Merchandise Manager
Zellers Inc.

Mark Kinnin
Buyer
Zellers Inc.

Address all communications to:

Secretary
Canadian International Trade Tribunal
20th Floor
Journal Tower South
365 Laurier Avenue West
Ottawa, Ontario
K1A 0G7

STATEMENT OF REASONS

CONDUCT OF THE INQUIRY

The Canadian International Trade Tribunal (the Tribunal), under the provisions of section 42 of the Special Import Measures Act [1] (SIMA), has conducted an inquiry following the issuance by the Deputy Minister of National Revenue for Customs and Excise (the Deputy Minister) of a preliminary determination of dumping dated October 7, 1992, respecting the importation into Canada of footwear with waterproof plastic bottoms and non-leather tops, waterproof bottoms of rubber or plastic, and waterproof plastic footwear, excluding safety and sports footwear, originating in or exported from the Czech and Slovak Federal Republic, the People's Republic of China, the Republic of Korea and Taiwan. A final determination of dumping respecting the subject goods was issued on December 23, 1992. The Deputy Minister's investigation into dumping covered importations of the subject goods from July 1, 1991, to June 30, 1992.

The notices of preliminary and final determinations of dumping were published in Part I of the October 24, 1992, and January 9, 1993, editions of the Canada Gazette, respectively. The Tribunal's notice of commencement of inquiry issued on October 14, 1992, was published in Part I of the October 24, 1992, edition of the Canada Gazette.

As part of the inquiry, the Tribunal sent detailed questionnaires to Canadian manufacturers and importers of the subject goods, requesting production, financial, import and market information, as well as other information, covering the period from January 1, 1989, to September 30, 1992. From the replies to the questionnaires and other sources, the Tribunal's research staff prepared public and protected pre-hearing staff reports covering that period.

The record of this inquiry consists of all Tribunal exhibits, including the public and protected replies to questionnaires, all exhibits filed by the parties at the hearing, as well as the transcript of all proceedings. All public exhibits were made available to the parties, while protected exhibits were made available only to independent counsel who had given undertakings.

Public and in camera hearings were held in Ottawa, Ontario, starting on January 11, 1993. The complainant, Shoe Manufacturers' Association of Canada (SMAC), as well as Carlaw Limited (Carlaw), Genfoot Inc. (Genfoot), Kaufman Footwear, Division of William H. Kaufman Inc. (Kaufman), Chamberlain Phipps Canada Limited, Vimod Rubber Division (Vimod), Maple Leaf Shoe Co. Ltd. (Maple Leaf), Rallye Footwear Inc. (Rallye) and Norimco, Division of Bata Industries Ltd. (Norimco), were represented by counsel at the hearing.

On February 4, 1993, the Tribunal issued its finding that the dumping in Canada of the subject goods from the Czech and Slovak Federal Republic, the People's Republic of China (China), the Republic of Korea (Korea) and Taiwan has not caused, is not causing and is not likely to cause material injury to the production in Canada of like goods (Member Gracey dissenting).

PRODUCT

The products that are the subject of this inquiry are described by the Deputy Minister in the preliminary determination of dumping as footwear with waterproof plastic bottoms and non-leather tops, waterproof bottoms of rubber or plastic, and waterproof plastic footwear, excluding safety and sports footwear, originating in or exported from the Czech and Slovak Federal Republic, China, Korea and Taiwan.

Footwear with waterproof plastic bottoms and non-leather tops (hereinafter known as waterproof winter boots) is characterized by a boat-like waterproof bottom component made of plastic to which a top or upper is usually stitched. The upper, which varies in height and design, may be made of textile fabrics, coated fabrics or other man-made materials.

Waterproof plastic footwear is usually made entirely of plastic, as in the case of rainboots. In some cases, the footwear may be provided with trimmings or attachments of other materials, as in the case of duck boots (commonly known as "duckies").

Waterproof winter boots and waterproof plastic footwear are both finished goods. They may be fitted with or without liners, linings and fasteners. They include footwear for men, women and children. Winter boots are used mainly during the cold months of winter and spring, while waterproof plastic footwear is used as a protective covering for rainy conditions. This footwear is sold through mass merchandisers, large retail chains, footwear chains and independent stores. Children's waterproof winter boots are generally sold by mass merchandisers at regular retail price points ranging from $14.99 to $22.99.

Waterproof bottoms made of rubber or plastic (hereinafter known as bottoms) are components used to produce finished waterproof footwear and, as such, are considered unfinished goods. The distinctive feature of such bottoms is that the sole and a portion sufficient in height to give waterproof protection to the foot are incorporated into a single boat-like component. For the purpose of this inquiry, the subject bottoms may be made of either rubber (including thermoplastic rubber [TPR]), polyvinyl chloride (PVC) or other plastics.

Slush moulding and injection moulding are the two most common moulding processes used in the manufacturing of the subject finished footwear and bottoms.

DOMESTIC INDUSTRY

The complainant, SMAC, is an association of footwear manufacturers. There are currently eight known manufacturers of the subject goods in Canada: The Acton Rubber Company Ltd., Carlaw, Genfoot, Kaufman, Maple Leaf, Norimco, Rallye and Vimod. These manufacturers, all members of SMAC, accounted for the totality of the Canadian production of the subject footwear in 1991. The three largest manufacturers of the subject finished footwear in 1991, Norimco, Maple Leaf and Carlaw, accounted for 83 percent of the total domestic production.

All but three manufacture product lines not covered by this inquiry, e.g. waterproof footwear made of rubber or TPR, footwear with waterproof bottoms and leather tops, footwear approved by the Canadian Standards Association and other types of footwear. All Canadian manufacturers produce their own bottoms made of rubber or plastic to be used in the assembly of the subject and non-subject finished footwear; a few also sell bottoms to small secondary manufacturers (called "toppers") or export them to the United States.

Most domestic manufacturers use the injection moulding process for manufacturing the subject footwear; two manufacturers also use slush moulding. The domestic manufacturers produce and market their footwear under their own brand names, private labels, licences or some combination of these arrangements.

IMPORTERS AND EXPORTERS

The subject goods were primarily imported by mass merchandisers such as Zellers Inc. (Zellers) and Kinney/Woolco. Footwear importers, smaller retailers and merchandising agents also imported the subject goods during the period of inquiry. Only Hichaud Inc. (Hichaud), a small importer of bottoms and a secondary manufacturer ("topper") of finished footwear, appeared at the hearing. Another small importer, Cavalier Equestrian Supply Ltd. (Cavalier), which imported equestrian riding boots during the period of inquiry, requested an exclusion.

RESULTS OF THE DEPUTY MINISTER'S INVESTIGATION

The period of investigation selected by the Deputy Minister covered importations of the subject goods from July 1, 1991, to June 30, 1992.

In the final determination of dumping, the Deputy Minister indicated that approximately 43.2 percent of the subject goods examined during the period of investigation were found to be dumped. The margins of dumping for the dumped goods ranged from 1.3 to 47.2 percent. These results varied by type of products and by subject countries. Of the subject goods examined, approximately 35 percent of waterproof winter boots were found to be dumped, while 65 percent of the waterproof plastic footwear and 100 percent of the bottoms examined were dumped.

During the period of investigation, only about 4 percent of Taiwan's exports of waterproof winter boots were found to be dumped; the margin of dumping on these goods was 1.6 percent. Out of this country's exports of waterproof plastic footwear, 61 percent were found to have been dumped at a margin ranging from 5.3 to 6.3 percent. There were no Taiwanese exports of bottoms. Due to the lack of co-operation from China, the Czech and Slovak Federal Republic and Korea and their failure to provide the necessary information, normal values for those countries were determined on the basis of a ministerial specification and are equal to the export price of the goods, plus an amount equal to 89.3 percent of that export price. The 89.3-percent markup on export price corresponds to the highest margin of dumping (47.2 percent) found for all goods reviewed in the preliminary determination of dumping (where the margin of dumping is expressed as a percentage of the normal value). Therefore, the subject goods imported from China, the Czech and Slovak Federal Republic and Korea were found to be dumped by a margin of 47.2 percent.

POSITION OF THE COMPLAINANT

Counsel for the complainant submitted that the Tribunal should find that the dumping of the subject goods has caused, is causing and is likely to cause material injury to the production in Canada of like goods. Counsel submitted that injury from dumping had appeared in the form of lost sales and consequent lost production and market share, price suppression, loss of profitability and loss of employment.

Counsel stated that, even though SMAC forewarned importers and retailers in early 1992 of the potential anti-dumping action on plastic footwear, imports continued to gain market share, and SMAC's members widely believed that, if dumped imports continued, the industry would continue to lose market share. In addition, domestic manufacturers were concerned with the fact that, in the closing months of 1991, imported waterproof winter boots for children were offered at a very low retail price. They believe that, if left unchecked, the retailers would turn to offshore sources for low-priced boots.

According to counsel, the waterproof plastic footwear industry is relatively young, is noted for its innovation and the attractiveness and functionality of its products, is export oriented and is highly competitive.

Counsel submitted that the industry had been injured in terms of loss of market share and the resulting loss of sales and production. Counsel noted that imports of the subject finished footwear from the subject countries grew rapidly, from 47,000 pairs in 1989 to 551,000 pairs in the first three quarters of 1992, which consequently decreased the domestic industry's market share, and that the 1992 figures would have been much higher had it not been for the anti-dumping complaint made by SMAC and the resulting investigation by the Deputy Minister.

Counsel argued that the domestic production of the subject goods and the total apparent market, as evidenced in the record, required adjusting. They argued that increases, shown in the record, resulted from a switch in production by one manufacturer from TPR to PVC and that the switch merely resulted in new PVC goods replacing former TPR production and, thus, did not reflect growth in the market. By making this adjustment, counsel stated that the domestic production of the subject goods would not have increased and that the total apparent market would have experienced only a modest growth. This slight increase in the market, counsel further contended, was due to the nature of the subject goods being cost effective, even in a recessionary period, and to children's physical growth, which necessitates regular purchases of replacement footwear.

Counsel submitted that, on the adjusted basis, a loss of about 11 percentage points of market share was experienced over the last two years. Consequently, sales, production, employment and gross margins were negatively affected, and material injury was sustained as a result of the imports, although, counsel admitted, an important proportion of these imports had not been dumped.

Regarding future injury, counsel submitted that the threat was imminent because major retailers remained in a position to resume substantial imports for the coming fall and that orders for the coming selling season had not yet been committed to any large extent as retailers awaited the Tribunal's finding. Counsel noted that the vulnerability of the industry varied from firm to firm depending on the mix of products, the positioning of the firm in terms of pricing and the strategic decision made in terms of volumes, prices and acceptable profit margins.

As far as bottoms were concerned, counsel argued that an exclusion from injury would expose the Canadian industry to an easy means of circumventing any finding on finished footwear.

RESPONSE

No parties represented the importers or exporters throughout the proceedings.

REQUESTS FOR EXCLUSION

The Tribunal received a request from Cavalier for the exclusion of waterproof plastic equestrian riding boots from an injury finding. Because of the incorporation of specific features designed for the sport of riding, for example, a small protrusion on the heel to act as a spur rest, it was submitted that equestrian riding boots be considered sports footwear and, consequently, be excluded from any finding of material injury. Hichaud also requested that vulcanized rubber bottoms be excluded from any finding of injury due to the differences between vulcanized rubber bottoms and bottoms that are made of TPR or PVC or that are slush moulded.

ECONOMIC INDICATORS

Key economic indicators for the subject finished footwear industry, which consists of waterproof winter boots and waterproof plastic footwear, are summarized in the following table.

SUBJECT FINISHED FOOTWEAR

ECONOMIC INDICATORS

1989

1990

1991

1991
3Q

1992
3Q

Sales from Domestic Production for Domestic Consumption ($000)1

34,653

40,848

41,156

32,889

34,172

Industry's Market Share (%)

99

96

90

89

86

Importers' Market Share from Subject Countries (%)2

1

4

8

10

13

Importers' Market Share from Non-subject Countries (%)

0

0

2

1

1

Total Market Share from Imports (%)

1

4

10

11

14

Industry Net Income or (Loss)($000)1,3

(227)

223

366

(231)

(1,636)

Industry Utilization of Capacity (%)

67

69

63

62

61

Industry Employment4

994

1,048

969

N/A

1,0075

N/A = Not applicable.

Note: The symbol "3Q" means the first three quarters of the year.

1. On a fiscal-year basis.

2. The majority of the imports from the subject countries examined by the Department of National Revenue during the period of investigation were found not to be dumped. Refer to the section entitled "Results of the Deputy Minister's Investigation."

3. Excludes data from Rallye and Carlaw.

4. Direct employment relative to the production of the subject finished footwear and bottoms.

5. Figure for 3Q 1992 is for full year 1992.

In the three years from 1989 to 1991, the total apparent market for the subject finished footwear in Canada ranged roughly from three to four million pairs, experiencing a 23-percent increase over the three-year period. [2] Although the domestic manufacturers' sales increased from $34.6 to $41.1 million during this period, their share of the market declined from 99 to 90 percent, while imports from the subject countries increased their market share from 1 to 8 percent. Imports from the non-subject countries were negligible throughout the period of inquiry. The industry was generally profitable during this period, although utilization of capacity and employment were showing declines.

In the first nine months of 1992, compared to the corresponding period in 1991, domestic manufacturers experienced increased sales in a growing market, but lost a further three percentage points of market share to imports from the subject countries. Although the industry increased its employment, its rate of utilization of capacity fell slightly, and net financial losses were experienced.

The following table provides key market share indicators for the two segments of the subject finished footwear: waterproof winter boots and waterproof plastic footwear.

WATERPROOF WINTER BOOTS AND WATERPROOF PLASTIC FOOTWEAR

APPARENT MARKET SHARE

(%)

1989

1990

1991

1991
3Q

1992
3Q

Waterproof Winter Boots

Domestic Manufacturers

99

96

90

89

84

Importers - Subject Countries

1

4

9

10

15

Importers - Non-subject Countries

0

0

1

1

1

Subtotal

100

100

100

100

100

Waterproof Plastic Footwear

Domestic Manufacturers

99

97

92

91

91

Importers - Subject Countries

1

3

8

9

9

Importers - Non-subject Countries

0

0

0

0

0

Subtotal

100

100

100

100

100

Note: The symbol "3Q" means the first three quarters of the year.

The market for waterproof winter boots accounted for approximately 80 percent of the total apparent market for the subject finished footwear during the period of inquiry. The domestic manufacturers' share of this market declined from 99 percent to 84 percent during this period, while imports from the subject countries increased by 14 percentage points. In regard to waterproof plastic footwear, the domestic manufacturers' share of the market also declined by 8 percentage points over the period. Overall, Taiwan was the largest source of imports of waterproof winter boots and waterproof plastic footwear, followed by China, the Czech and Slovak Federal Republic and Korea.

In regard to bottoms, the total apparent market fluctuated between 4.4 to a high of 5.2 million pairs during the period of inquiry. An examination of the first nine months of 1992, compared to the corresponding period in 1991, revealed a slight increase in the apparent market. Imports of bottoms were fairly constant throughout the period of inquiry, accounting for approximately 2 percent of the total market, most of which were imported from the United States, a non-subject country. A very small volume of imports originated in the Czech and Slovak Federal Republic and Korea.

REASONS FOR DECISION

Pursuant to section 42 of SIMA, the Tribunal must determine whether the dumping of certain waterproof footwear has caused, is causing or is likely to cause material injury to the production in Canada of like goods. The Tribunal has examined the evidence presented and the effects of dumping on the subject goods.

Waterproof Winter Boots

Until the early 1980s, most protective footwear was made of laid-up rubber or moulded TPR. New chemical processes brought various plastics, including PVC, to the consumer market. Similar to TPR in waterproofing qualities, PVC has the advantages of toughness, lightness and basic lack of colour, which can give rise to an enormous range of coloured products by the addition of dyes and pigments. Until 1989, domestic manufacturers met virtually all of the growing market demand for moulded plastic footwear, and imports of PVC waterproof winter boots were almost nonexistent.

The situation changed in 1990, when Zellers, the largest retailer of winter boots in Canada, decided to source some of its requirements from abroad. Total sales from imports of waterproof winter boots, which had been negligible until then, grew to 126,000 pairs to take four percentage points of market share. As the market was experiencing rapid growth, the domestic industry also experienced increased sales, albeit at a less rapid rate than that of the imports. In the following year, 1991, the apparent market for waterproof winter boots grew by a further 7 percent. While sales from imports of these boots increased to 317,000 pairs (an increase of 152 percent), domestic manufacturers' sales experienced a slight increase (one percentage point). In that year, a new manufacturer, Rallye, appeared on the scene. A comparison of the first nine months in 1992 with the corresponding period in 1991 reveals that the market was still growing, that domestic manufacturers' sales declined slightly and that sales from imports increased by approximately 51 percent, to 426,000 pairs. During 1992, Genfoot switched some of its production of waterproof winter boots from TPR to PVC.

The level of imports of waterproof winter boots varied widely among the four subject countries. Imports from Korea peaked in 1990, at 119,000 pairs, accounting, at that time, for the totality of imports of waterproof winter boots, and dropped to a negligible 14,000 pairs in 1992, or 3 percent of the imports from the subject countries. The decline in imports from Korea was somewhat replaced by imports from Taiwan. Nonexistent in 1989, imports from Taiwan accounted for 60 percent of all imports of waterproof winter boots originating in the four subject countries in 1991, or 180,000 pairs, and approximately 59 percent, or 267,000 pairs, in the first nine months of 1992. Imports of waterproof winter boots from China, negligible until 1991, at 10,000 pairs, rose sharply to 106,000 pairs in the first three quarters of 1992, to become the second largest source of imports, accounting for 23 percent of total imports of these boots from the subject countries. Finally, imports from the Czech and Slovak Federal Republic increased from 53,000 pairs in 1991 to 68,000 pairs in 1992, making up 15 percent of all imports of waterproof winter boots in 1992 from the subject countries. As stated previously, the majority of imports of waterproof winter boots examined by the Department of National Revenue (Revenue Canada) during the period of investigation were not dumped. Most of those imports consisted of children's waterproof winter boots. [3] Evidence provided by Zellers shows that imports, at least for 1991 and 1992, were found essentially in the lower price range and were landed in Canada in the $7.50-$8.00 price range.

A witness appearing on Zellers' behalf told the Tribunal that between 1990 and 1992, Zellers increased its purchases of domestic waterproof winter boots from four of its five suppliers. The increase in the level of business in both dollar value and pairage ranged from 25 percent to 86 percent, depending on the manufacturer. In only one instance did Zellers decrease its purchases from a domestic supplier (e.g. Carlaw), as it was shifting away from the type of footwear supplied by this manufacturer. By its own estimates, Zellers' share of the retail market for winter footwear grew over the period, allowing the firm to increase both its imports from the Far East and its domestic purchases.

The Tribunal notes Zellers' position in the marketplace and the company's decision to source products from Korea in 1990 and from Taiwan in 1991 and 1992. It was explained that these imports were the result of a corporate decision to find alternate sources to domestic manufacturers, for various reasons, but mostly for a price advantage. It was explained that price was one of several variables used to make sourcing decisions, but that reliability of the source, materials, manufacturing quality of the footwear and the interaction between supplier and manufacturer were also important factors. As a large retailer and importer of the subject waterproof winter boots, Zellers' policy is to purchase domestically when it makes business sense, but the company will purchase from any sources if similar quality but lower-priced products can be found. Another witness, Kmart Canada Limited (Kmart), echoed the Zellers' statement that imports are based on price.

During the proceedings, the industry's claim of material injury focussed principally on three major elements: lost sales, price suppression and reduced financial performance.

Four manufacturers submitted specific evidence on lost sales or on sales where price was reduced. The majority of the alleged lost sales were for children's waterproof winter boots, and approximately 85 percent of these allegedly lost sales were identified to have been lost to imports from Taiwan, while the remaining lost sales were alleged to have been lost mainly to imports from the Czech and Slovak Federal Republic and China. The Tribunal notes, however, that only a negligible volume of waterproof winter boots originating in Taiwan was found to be dumped and that this dumping was effected at very low margins (much less than 5 percent).

The Tribunal finds that the evidence is not conclusive on the loss of sales due to dumped imports; in some cases, manufacturers were uncertain as to the source of imports for these lost sales. In total, approximately 16 percent of allegedly lost sales could be identified as having been lost to dumped imports, representing about 1 percent of total industry sales in 1991. The Tribunal also heard that some of the sales may have been or were lost to other domestic manufacturers. For instance, Norimco, in light of its loss of sales due to the disappearance of some of its customers and the general movement of the market from department stores to mass merchandisers and discounters, modified its pricing strategy by concentrating on the $11-to-$12 segment of the winter footwear market instead of its previously traditional $13-to-$17 segment, thereby taking sales away from other manufacturers. The Tribunal also notes that neither Vimod nor Kaufman claimed any loss of sales.

The Tribunal is of the opinion that price suppression did take place and was caused by the presence of increasing imports, but not necessarily by dumped imports. Evidence was adduced that retailers requested lower prices from domestic manufacturers based on the price of imported footwear. These requests were also made in terms of pairage, i.e. in order to keep a similar volume of boots, the manufacturer had to accept price concessions. In some cases, volumes ordered were reduced. The Tribunal also heard evidence that some manufacturers have not been able to raise their prices and, in fact, saw their prices decrease for waterproof winter boots between 1991 and 1992. Indeed, some manufacturers faced a decline of one dollar or more a pair in the price of children's waterproof winter boots from the 1991 to the 1992 selling season. These declines in price varied depending on the mix of the products being offered to the retailer. In the end, the Tribunal believes that lower-priced imports enabled retailers to extract price concessions from the domestic industry and that these imports had exerted some price-suppressive effects.

Domestic manufacturers produce very similar products and sell to the same limited number of retailers (such as Zellers, Kmart, Kinney/Woolco, Sears, Eaton's and the Bay) in about the same price range, with the exception of Kaufman which is in the higher end segment of the market. Manufacturers themselves confirmed the level of intra-industry competition and the efforts made to compete on price and on styling. One manufacturer, Norimco, told the Tribunal that it may be seen as the "bad guy" in the industry, as "the domestic manufacturer that took business away from the others. [4] " One manufacturer acknowledged that it was not going to lose its share of the market to anybody else.

There was evidence that retailers do play manufacturers against one another in order to gain better pricing. Although generally loyal to their suppliers, retailers are constantly looking for the right merchandise at the right price, counting on domestic manufacturers to develop products that can be sold and be profitable. It would appear, from the evidence, that a difference of $0.25 a pair is not enough for a retailer to switch domestic manufacturers.

In regard to the industry's financial performance, the Tribunal notes that, on an aggregate basis, the majority of the industry enjoyed profits that were relatively constant during the 1990-92 period. [5] The majority of the industry excludes one specific manufacturer whose profitability was negative throughout the period of inquiry and whose losses were growing. The evidence is that the rationalization of the retail sector due to closures, bankruptcies of chains and mergers, all of which took place in the last two years, had a considerable negative effect on its financial performance. The Tribunal notes that this manufacturer started experiencing difficulties well before any dumping started.

The Tribunal finds it interesting that the two most recent entrants in the industry have certainly done well since their entry into the production of waterproof winter footwear. In its first year of production in 1991, Rallye was quite successful. However, the Tribunal notes that Rallye is a small manufacturer which occupies a niche not serviced by other manufacturers (i.e. three-colour bottoms), and that a large proportion of its sales are made under licence. On the other hand, in 1992, Genfoot, a well-established TPR manufacturer, shifted a significant proportion of its production of children's waterproof footwear from TPR to PVC. Counsel for the complainant argued that Genfoot's production should not be included in the industry's total production because this move was only a switch from one raw material to another and that the new sales in PVC footwear offset previous sales in TPR footwear. Counsel argued that removing Genfoot's production would further reduce the industry's level of production, market share and profitability and, therefore, be closer to the real situation. The Tribunal is of the opinion that this manufacturer's move was a strategic decision made in order to adapt to changing market conditions, to reduce costs and to be more competitive, and, as such, it should be considered an active player in the waterproof winter boot industry.

In summary, although the industry lost market share during the period of inquiry, much of this loss was to imports into Canada at undumped prices. The evidence was strong that the competition among manufacturers is intense, that domestic manufacturers compete on price and that retailers encourage this price competition. The Tribunal believes that this continuing intra-industry competition and the increasing import activity had a stronger impact on prices than the relatively small volume of dumped imports. Although some price suppression may have taken place, its extent was not sufficient to cause material injury.

The Tribunal must now determine whether the dumping is likely to cause material injury to the production in Canada of like goods. In questions of this nature, the Tribunal is guided by paragraph 6 of Article 3 of the GATT Anti-Dumping Code [6] which reads, in part, as follows:

A determination of threat of injury shall be based on facts and not merely on allegation, conjecture or remote possibility.

It would appear that the intra-industry competition, which existed before the dumping started, will remain. The testimony of Norimco is highly informative in this regard. Also, none of the manufacturers that appeared before the Tribunal gave any indication that they had any intention of leaving the industry. Pressure should thus continue to be felt on prices. One manufacturer told the Tribunal that, to secure a recent contract, it had to commit its production well ahead of the normal production season. This phenomenon, that has also taken place in the past, will probably grow in the future, as retailers try to secure the best prices available from their domestic suppliers.

The Tribunal heard, during the course of the proceedings, that Taiwan will no longer be a source of imports for waterproof winter boots, as Dunmill Industrial Co., Ltd. (Dunmill), the largest exporter from that country, had ceased production and would be moving, or had already, moved to China. It is open to question whether this will result in an increase in exports from that country, as importers continue to source part of their requirements offshore. What is known, however, is that the industry was unable to link imports from China with any indication of material injury, despite the fact that imports from this source accounted for 23 percent of all imports (and 2 percent of the total apparent market) for 1992 and that they were being dumped at a 47.2-percent margin. As stated previously, this margin was determined on the basis of a ministerial specification. The Tribunal has no authority to look behind and reevaluate the Deputy Minister's dumping calculations. The Tribunal, however, does have discretion to decide how much weight is to be given to dumping margins in conducting its injury analysis. [7]

In recent years, the footwear industry in Canada has had to adapt to significant changes in technology, new materials, consumer demand and global competition. In particular, the waterproof winter boot segment of this industry has demonstrated a strong leadership role in designing, developing and marketing high-quality and high-fashion products to meet the unique requirements of a cold climate. Traditionally, the domestic market has been characterized by intense competition among efficient manufacturers and by a limited number of competitive merchandisers that buy their products. This relationship was altered in recent years by the introduction of imports, mainly from the Orient, by the large retailers in their pursuit of a lower-cost product. For the most part, Canadian manufacturers have been able to meet this competition and retain the major portion of the market, even though some of the imports have been dumped.

Waterproof Plastic Footwear

The Tribunal notes that the apparent market for waterproof plastic footwear increased during the period of inquiry, accounting for 21 percent of the total apparent market for the subject finished footwear in 1989 and increasing to 28 percent in the first nine months of 1992. The share of the domestic manufacturers declined from approximately 99 percent to 91 percent over the same period.

The Tribunal notes that a substantial proportion (65 percent) of all the imports examined by Revenue Canada was found to be dumped at considerable margins of dumping from all countries, with the exception of Taiwan whose margins of dumping were much smaller. The industry, however, did not provide any substantive information or evidence of past and present injury with respect to lost sales, price suppression or reduced profitability, nor did it demonstrate that the situation was likely to be modified, in an injurious way, in the near future.

Bottoms

Very little evidence was presented by the industry with respect to past, present and future injury caused by dumped imports of bottoms. The issue of material injury caused by dumped imports was not raised in the industry submissions, no exhibits were presented to the Tribunal, and no specific evidence of lost sales, price suppression or reduced profitability was adduced throughout the proceedings. The Tribunal also notes that, even though all bottoms from the subject countries examined by the Deputy Minister were found to have been dumped, these imports represented an insignificant proportion of the market for bottoms. In 1992, however, a large volume of bottoms was imported from the United States, a non-subject country, by one of the domestic manufacturers for its own use.

The Tribunal heard from the SMAC representative that there had been rumours in 1991 that one of the major retailers was considering the large-scale importation of PVC bottoms to be used in manufacturing finished waterproof winter boots in Canada. Argument was also made by counsel for SMAC that anyone interested in importing bottoms could do so in large volumes for production of complete footwear by the addition of uppers and, therefore, could circumvent an injury finding on finished footwear. The Tribunal finds these arguments purely speculative.

CONCLUSION

In light of the foregoing and based on all the information on record and the evidence adduced at the hearing, the majority of the Tribunal concludes that the dumping in Canada of waterproof winter boots, waterproof plastic footwear and bottoms, excluding safety and sports footwear, originating in or exported from the Czech and Slovak Federal Republic, China, Korea and Taiwan, has not caused, is not causing and is not likely to cause material injury to the production in Canada of like goods.

DISSENTING OPINION OF MEMBER GRACEY

I agree with my colleagues that the evidence and argument presented were not conclusive in regard to past, present and future injury with respect to waterproof plastic footwear and bottoms. I am also in agreement that dumped imports of waterproof winter boots have not caused and are not causing material injury to the production in Canada of like goods. However, the evidence is sufficient to persuade me that there is a clear likelihood of future material injury should the dumping of waterproof winter boots from the Czech and Slovak Federal Republic and China be allowed to continue.

There is no question that Canadian retailers have recently been looking to offshore suppliers for a portion of their requirements of waterproof winter boots and that their motivation for doing so is price. Indeed, the proportion of imports of waterproof winter footwear from China increased dramatically, accounting for approximately 23 percent of waterproof winter boots imported in 1992, compared to only 3 percent in 1991. I believe that low price offerings explain this dramatic increase. Moreover, it appears likely that imports will continue to increase in the absence of a finding of material injury, and there are several references to China as a continuing source of supply. Evidence was presented that the Taiwanese firm, Dunmill, from which most Taiwanese supplies have been sourced to date, had ceased production and would be moving, or had already moved, its production facilities to China. Indeed, in a document filed with the Tribunal, a retailer provided quotes, on waterproof winter boots received from this manufacturer, that were based on production in China for the 1993 selling season.

A witness for a major retailer testified that, while it had not yet purchased any waterproof winter boots from China in 1993, it had received firm quotations for the next season and still had to decide whether it was going to buy any in 1993. The same witness testified that, if the major retailer's requirements for waterproof winter boots could not be met by domestic manufacturers at the requested prices, it would have to "go outside somewhere to get it." The witness also stated that, because of the pressure of imports, Canadian manufacturers had been offering better prices.

Some domestic manufacturers stated that one of their options, if duties were not imposed and dumping continued unabated, would be to import sewn uppers from the Orient and China; one manufacturer testified that it had already received quotes to do so. A second option would be to import the finished waterproof winter boots from the Orient, while a third would be to move production to China.

Therefore, I have no hesitation in reaching the conclusion that there is a real and imminent threat of future injury from China. I base that conclusion on the fact that imports of dumped goods at high margins increased dramatically between 1991 and the first three quarters of 1992, and that some retailers (that are also importers) have openly acknowledged an intention to import from that source. Following the discontinuation of production in Taiwan, it appears likely that those that imported products from Taiwan will seek out alternate sources, of which China and the Czech and Slovak Federal Republic are the most probable.

I agree that there is not sufficient evidence to justify a finding of past or present injury on waterproof winter boots, but I would point out that, while domestic manufacturers increased their sales by 0.9 percent in 1991, imports increased by 152 percent, and, as a result, the market share of domestic manufacturers for waterproof winter boots fell from 95.7 to 90 percent in 1991. In the first three quarters of 1992, domestic sales declined very marginally, but imports increased a further 34 percent over the full year 1991. Thus, in 1992, the market share of domestic manufacturers declined further to 84 percent. I acknowledge that nearly 60 percent of these goods were from Taiwan. However, in view of the evidence that Taiwan is planning to shift its production to China, there is a very reasonable expectation that imports of dumped subject goods from China will increase in quantity and cause material injury to the production in Canada of like goods.

I am aware of the proposition that, if waterproof winter boots from China were priced not lower than those from Taiwan, which were found not to be dumped, it would be illogical to conclude that waterproof winter boots originating in China would cause material injury. However, the proposition is based on the debatable assumption that Taiwanese prices will remain at undumped prices in the future. That Dunmill chose to move its Taiwanese operation to China convinces me that its exports at undumped prices were no longer sustainable. The evidence leads me to believe that the continuing pressure exerted by merchandisers to source products at the lowest possible cost will result in increasingly lower-priced imports and exacerbate the price suppression and the related volume of imports already experienced by domestic manufacturers. While I could not find this price suppression to be sufficient to cause material injury in the past or the present, I have no doubt that, in the absence of a finding of likelihood of material injury, the threshold of material injury will be crossed shortly.

In regard to the Czech and Slovak Federal Republic, the evidence is less dramatic, but the facts are that it increased its exports of dumped goods in 1992. I see no reason to conclude that, without a finding of future injury, imports of dumped goods from that source would not increase. Imports of dumped goods from Korea, on the other hand, have declined sharply, and there is no basis, presently, to conclude that there is a likelihood of material injury from that source.


1. R.S.C. 1985, c. S-15.

2. In order to respect the confidentiality of the TPR footwear production, the exact size of the total apparent market cannot be released publicly.

3. Children's winter boots account for approximately 75 percent of all sales of waterproof winter boots.

4. Transcript at 148.

5. Although financial results were provided in aggregate form only and covered sales of both waterproof winter boots and waterproof plastic footwear, the Tribunal finds that it is reasonable to use these results as a proxy for the performance of the waterproof winter boot segment, as this segment accounted for close to 80 percent of all finished footwear sold domestically during the period of inquiry.

6. Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade , signed in Geneva on April 12, 1979.

7. Remington Arms of Canada Limited v. Les Industries Valcartier Inc. , [1982] 1 F.C. 586 at 594.


[Table of Contents]

Initial publication: July 16, 1997

Case Number(s)

NQ-92-005

Attachment(s)

Status

Publication Date

Wednesday, July 16, 1997

Modification Date

Tuesday, January 20, 2004