5th report from the Commission on the quantitative quotas and surveillance measures applicable to certain non-textile products originating in the People's Republic of China
COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 17. 02. 2000 COM(2000) 91 final 5TH REPORT FROM THE COMMISSION on the quantitative quotas and surveillance measures applicable to certain non-textile products originating in the People's Republic of China 5TH REPORT FROM THE COMMISSION on the quantitative quotas and surveillance measures applicable to certain non-textile products originating in the People's Republic of China 1. INTRODUCTION. 3 A. Historical background. 3 B. Objective of the Commission report. 3 C. Methodology. 3 2. CHAPTER 1 Implementation OF THE QUANTITATIVE RESTRICTIONS. 5 I. Background and evolution since introduction of the measures. 5 II. Management of the quotas. 6 III. Developments in the trade of the products subject to quantitative restrictions. 8 3. CHAPTER 2 SHOULD COMMUNITY QUOTAS BE MAINTAINED?. 12 I. Approach adopted by the Commission. 12 II. Analysis of the sectors concerned. 13 1. Footwear. 13 2. Porcelain or china tableware and ceramic tableware. 24 III. IV. China's trade liberalisation and WTO accession. 34 Overall conclusions. 34 4. CHAPTER SURVEILLANCE MEASURES. 37 AND MAINTENANCE IMPLEMENTATION OF 3 I. Purpose of surveillance measures. 37 II. Implementation. 37 III. IV. Trends in imports of products under surveillance. 38 Should surveillance measures be maintained?. 39 5. CHAPTER 4 CONCLUSIONS AND PROPOSALS OF THE COMMISSION. 40 2 A. Historical background 1. INTRODUCTION By Regulation (EC) No 519/94 of 7 March 1994, the Council of the European Union introduced Community-wide quantitative restrictions on 7 categories of products originating in the People's Republic of China, namely gloves, footwear, porcelain tableware, ceramic tableware, glassware, car radios and toys, and certain surveillance measures. The introduction of such measures had been agreed, in principle, by the Council in December 1993 as part of a global package including acceptance of the Uruguay Round results, reinforcement of the trade policy instruments and completion of the common commercial policy. The latter aspect of the package involved the unilateral elimination of 6. 417 national quantitative restrictions (of which some 4. 700 concerning Chinese products) and the introduction of Community-wide quotas on imports from China of a limited number of sensitive products, whose imports were at that time subject to national restrictions. The introduction of such quotas was based on the following considerations: a) b) the sensitivity of the Community industries concerned; the increasing threat posed by imports from China to these industries, made more acute by the particular characteristics of the Chinese economy. B. Objective of the Commission report In the course of discussions in the Council on Regulation (EC) No 519/94, the Commission committed to report to the Council every year on the implementation of the surveillance measures and the quantitative restrictions provided for in Annexes II and III, on the need to maintain such measures, and to propose, as the need arises, the appropriate adjustments. This fifth report is in response to the above-mentioned commitment. C. Methodology 1. The report first reviews the implementation of the quantitative restrictions, including the problems raised by their administration. In its second chapter, it addresses the question of the need to maintain the quantitative restrictions introduced by the Council. To this end, the Commission examined whether the conditions which justified the introduction of these measures in 1994 are still present, in particular: a) the situation of the Community industries concerned, b) the sensitivity of these industries to Chinese imports and 3 c) the progress in Chinese trade liberalisation. This examination was conducted sector by sector. The implementation of the surveillance measures and the need to maintain them is dealt with in the third chapter. The fourth chapter presents, on the basis of the above analysis, the Commission conclusions. 2. It should be noted that, as in previous years, the Commission faced considerable difficulties in gathering information on the state of the Community industry, since producers generally produce a wide range of products, not just those subject to quota, and that the sectors concerned are made up of many small and medium-sized enterprises, of which a significant proportion are not even known by the relevant national federations. On the importers' side, the Commission received information of a general nature from one association and some individual importers. 3. In general, the analysis is based on figures for 1998. However, trends for 1999 have been used, where possible. 4 2. CHAPTER 1 IMPLEMENTATION OF THE QUANTITATIVE RESTRICTIONS I. Background and evolution since introduction of the measures Since their entry into force in March 1994, the quotas have been modified on a number of occasions in order to balance the objective of ensuring an appropriate protection of the Community industry concerned with that of maintaining trade flows with the People's Republic of China: - - - - - - In July 1994, the Council decided to increase the 1994 level of the quota on certain toys. In March 1995, the quotas were further increased to take account of the accession of Austria, Finland and Sweden. In April 1996, following the conclusions contained in the Commission's first annual report on the implementation of the quotas, the Council decided by Regulation (EC) No 752/96 to relax further the quota regime vis-à-vis China: • the quotas on 3 products (gloves, car radios and combined car radios) were liberalised; • the 3 toy quotas were merged into one quota, to give more flexibility to traders and allow them to react more rapidly to market changes; • the remaining quotas were increased (ceramic and porcelain tableware and glassware by 5% and certain footwear by 2%). In October 1996, Council Regulation (EC) No 1897/96 excluded glass-fronted clip-frames from the quota applicable to glassware. In May 1997, Council Regulation (EC) No 847/97 liberalised imports of toy parts and accessories and removed the quota on glass products tableware as from 1 January 1998. In May 1998, as a result of Council Regulation (EC) No 1138/98 of 28 May 1998, which implemented the Commission’s proposals included in its 3rd annual report: • imports of toys were liberalised; • the quotas on ceramic and porcelain tableware were increased by a further 5%. Finally, in its 4th Report the Commission concluded that, in view of the different factors to be taken into account, there should be no change in the structure and the level of the remaining quotas. 5 II. Management of the quotas a) Legal basis and objectives 1. The management of Community quotas is based on Council Regulation (EC) No 520/94 of 7 March 1994 establishing a Community procedure for administering quantitative quotas and Commission Regulation (EC) No 738/94 of 30 March 1994 laying down certain rules for the implementation of Council Regulation (EC) No 520/94 (mostly concerning procedural aspects, including the common import licence form). It should be recalled that before the adoption of Regulation (EC) No 520/94, quotas were allocated among Member States, and not directly to importers. Since the reform of March 1994, uniform criteria, determined by the Commission after consultation of the Management Committee, apply to all Community importers, in conformity with the principles of the Single Market and the relevant case law of the European Court of Justice. 2. In the management of the quotas, the Commission has been guided by the following principles: - - that administrative procedures would not add to the intended effect of the quotas on trade and that the available quantities would be fully used; and that non-discrimination among all Community importers, no matter where they are established and no matter where they submit a licence application would be ensured. b) Functioning of the quota management system 1. it In conformity with the above-mentioned principles, the Commission felt appropriate to resort to the first allocation method provided for by Regulation (EC) No 520/94, trade flows, which guarantees that "traditional" importers receive at least a part of their previous trade performance realised during a reference period, while ensuring a fair access to the quotas to non-traditional importers. the method based on traditional i. e. The method used for the allocation of the part of the quotas set aside for the non- traditional importers is the third method provided for by Regulation (EC) No 520/94, i. e. the method of proportional allocation to the quantities requested. In addition, in order to exclude speculative applications, a maximum quantity which may be applied for by non-traditional importers, is set. In 1996, 28. 204 import licence applications were submitted by non-traditional importers; this figure amounted to 19. 708 for the 1997 allocation and 21. 439 for the 1998 allocation, while it decreased to 17. 416 for the 1999 exercise (a decrease which has to be qualified as the number of products under quota was further reduced in 1998). Finally, for the 2000 quota year 27247 applications were submitted. 6 This extremely high number of applications results in those non-traditional importers being allocated very limited quantities, a fact which may lead to under-utilisation of the quotas. In an attempt to improve the situation the portion of the quotas reserved for non- traditional importers was increased by 5 percentage points in 1997 for the 1998 quota year and a similar increase was decided, in 1998, for the 1999 quota year. These limited increases have, at best, allowed non-traditional importers to be granted quantities similar to those, very limited, they were granted in previous years. In its 4th Report, therefore, the Commission indicated that the allocation system which guaranteed that most of the quotas are set aside for traditional importers, which was appropriate during the first 4 years, should be amended with a view to eliminating or at least reducing the imbalance between the quantities granted to "traditional" and "other importers". As a result, in 1999 and for the quota year 2000, the portion of the quotas reserved for non-traditional importers was further increased by 5 percentage points, while at the same time the maximum individual quota quantity entitlement was increased from 4,000 pairs to 5,000 pairs of footwear (per each CN quota line code) and from 4t. to 5t. for porcelain and ceramic tableware (per each CN quota line code). Further steps may be appropriate in the future with a view to, on the one hand, improve the overall utilisation of the quotas and, on the other, reduce as far as possible the unused quantities re-distributed the following year. In the management of the quotas, the Commission made every effort to satisfy the wish of importers to receive information as early as possible on their allocation for the following period. To this end, the Commission opened the allocation procedures for the 2000 quotas well before the beginning of the quota year, in June 1999, and allowed importers to introduce their applications during two and half months, until September 1999. The 2000 management rules currently provide for a 12-month validity of the import licences. Moreover, the unused 1999 quotas will be redistributed during 2000. The Commission considers that the quantities redistributed from the previous year should be kept separate from the current annual quota. Concerning the administrative procedures, the Community management system is based on a "single-stop" approach, whereby all Community importers, irrespective of where they are established in the Community, may submit a licence application to the competent authority of the Member State of their choice, and obtain an import licence which is valid throughout the Community. In addition, the application procedure has been made as simple as possible and the formalities reduced to a strict minimum; the licensing process is totally free of charge for the Community importers. 2. 3. 4. 7 c) Conclusion for traditional importers and the different duration of As is unavoidable when trade is subject to restrictions, the management of these quotas raised some problems. Some of them, such as the selection of the the reference year redistribution licences compared to the regular annual quota licences, have been satisfactorily addressed. The quantities allocated to non-traditional importers have again been increased for the 2000 quota year to, at least partially, reduce the imbalance in the allocation of the relative share of the quotas and thus improve their access to them. The Commission considers, however, that the system adopted has on the whole worked well, thanks to the cooperation of Member States. In particular, it is felt that any (legitimate) concerns that the management system should not add to the effect of the quotas, as decided by the Council, have been met. III. Developments in the trade of restrictions the products subject to quantitative The following two tables give a factual summary of the developments in the trade of each product subject to quantitative restrictions, both in terms of volume and value. 8 a) Evolution in volume of the products concerned (imports and quotas) Products Unit 1995 Imports 1996 1997 1998 1998 quotas (annual basis) 1999 quotas (annual basis) Quotas unused quantities in 1998 Rubber plastic shoes (6402 99) and uppers pairs 31. 348. 517 (xxx "hi-tech" incl. ) 48. 136. 893 (xxx "hi-tech" incl. ) 38. 878. 434 (xxx "hi-tech" incl. ) 34. 623. 222 (xxx "hi-tech" incl. ) 39. 151. 481 39. 151. 481 6. 508. 239 ("hi-tech" not included) ("hi-tech" not included) Leather (6403 51 & 59) shoes pairs 1242. 010 1. 541. 123 1. 511. 466 1. 079. 488 2. 795. 000 2. 795. 000 1. 294. 088 Leather (6403 91 & 99) shoes pairs 15. 652. 713 (xxx "hi-tec" incl. ) 18. 676. 971 (xxx "hi-tech" incl. ) 23. 288. 824 (xxx "hi-tech" incl. ) 23. 488. 462 (xxx "hi-tech" incl. ) Textile (6404 11) shoes pairs 14. 182. 424 (xxx "hi-tech" incl. ) 21. 410. 923 (xxx "hi-tech" incl. ) 29. 416. 097 (xxx "hi-tech" incl. ) 25. 445. 694 (xxx "hi-tech" incl. ) 12. 120. 000 12. 120. 000 1. 823. 036 ("hi-tech" not included) 18. 228. 780 ("hi-tech" not included) ("hi-tech" not included) 18. 228. 780 ("hi-tech" not included) 5. 863. 051 Textile (6404 19 10) shoes pairs 18. 915. 085 14. 158. 153 1. 552. 812 9. 654. 874 31. 897. 716 31. 897. 716 15. 869. 720 Total shoes pairs 81. 340. 749 (xxx "hi-tech" incl. ) 103. 924. 063 (xxx "hi-tech" incl. ) 94. 647. 633 (xxx "hi-tech" incl. ) 94. 291. 740 (xxx "hi-tech" incl. ) 104. 192. 977 104. 192. 977 31. 358. 134 ("hi-tech" not included) ("hi-tech" not included) - figures on "hi-tech" shoes subject to Community surveillance are based on surveillance documents issued; As the latter do not necessarily reflect actual levels of imports, figures were adjusted, where appropriate, on the basis of data available from the Taric database. Imports may differ when compared with figures supplied in previous reports due to necessary technical adjustments in the data avaiable from taric database. - figures on unused quantities based on import licences returned to the Member States 9 Imports Quotas Products Unit 1995 1996 1997 1998 1998 quotas (annual basis) 1999 quotas (annual basis) unused quantities (*) in 1998 tonnes 31. 966 34. 742 37. 969 52. 381 48. 090 48. 090 8. 175 tonnes 26. 372 28. 454 32. 105 44. 255 36. 383 36. 383 7. 043 Porcelain tableware (691110) Ceramic tableware (691200) Source: - EUROSTAT (*) figures on unused quantities based on import licences returned to the Member States 10 b) Import prices of products originating in China Product Unit price in 1995 Unit price in 1996 Unit price in 1997 Unit price in 1998 Footwear: - 6402 99 4. 35 ECU/pair 4. 81 ECU/pair 4. 95 ECU/pair 4. 92 ECU/pair - 6403 51 6. 74 ECU/pair 7. 56 ECU/pair 8. 34 ECU/pair 10. 79 ECU/pair - 6403 59 3. 17 ECU/pair 2. 88 ECU/pair 2. 69 ECU/pair 3. 05 ECU/pair - 6403 91 11. 17 ECU/pair 12. 16 ECU/pair 13. 69 ECU/pair 13. 30 ECU/pair - 6403 99 9. 25 ECU/pair 9. 54 ECU/pair 11. 09 ECU/pair 11. 88 ECU/pair - 6404 11 7. 17 ECU/pair 8. 33 ECU/pair 9. 41 ECU/pair - 6404 19 0. 83 ECU/pair 1. 11 ECU/pair 1. 14 ECU/pair 9. 58 1. 14 ECU/pair ECU/pair 10 Porcelain tableware(*): 6911 10 1070. 0 ECU / 1149. 61 ECU / 1364. 42 ECU / 1310. 00 ECU / 3 tonne Tonne tonne Tonne Ceramic tableware(*): 6912 00 1077. 9 ECU / 1212. 91 ECU / 1404. 18 ECU / 1500. 00 ECU / 2 tonne Source: EUROSTAT Tonne tonne Tonne 11 3. CHAPTER 2 SHOULD COMMUNITY QUOTAS BE MAINTAINED? I. Approach adopted by the Commission To reply to this question the Commission sought to find out if the conditions that had provoked the introduction of quantitative restrictions in 1994, namely the sensitivity of the Community industries concerned and the threat posed by Chinese products to them, still prevailed. It did this by carrying out a sector-by-sector analysis on the basis of the following economic indicators: 1. 2. 3. 4. 5. 6. Structure of the industry Production Employment Import trends Import prices China’s export potential In addition, in section III below, the Commission analyses the implications of Chinas rade liberalisation and WTO’s accession for the maintenance of the Community’s quotas. 12 II. Analysis of the sectors concerned 1. Footwear CN 6402 99; 6403 51 and 59; 6403 91 and 99; 6404 11; 6404 19 10 The following footwear products are subject to quantitative restrictions: CN Code 640299 1 640351 640359 640391 640399 1 1 640411 2 64041910 Product description Footwear, not covering the ankle, with outer soles and uppers of rubber or plastics (other than waterproof footwear covered under heading 6401; and other than sports footwear and other footwear covered under heading 6402) Footwear, covering the ankle, with outer soles and uppers of leather (other than sports footwear) Footwear, not covering the ankle, with outer soles and uppers of leather (other than sports footwear) footwear with outer Other rubber, plastics, composition leather and uppers of leather, covering the ankle soles of leather or footwear with outer Other composition leather and uppers of leather, not covering the ankle rubber, plastics, soles of leather or training Sports footwear, tennis shoes, basketball shoes, gym shoes, shoes and the like, with outer soles of rubber or plastics and uppers of textile materials Slippers and other indoor footwear with outer soles of rubber or plastics and uppers of textile materials, other than those covered under heading 6404 11 1 2 Excluding footwear involving special technology : shoes which have a cif price per pair of not less than ECU 9 for use in sporting activities, with a single- or multilayer moulded sole, not injected, manufactured from synthetic materials specially designed to absorb the impact of vertical or lateral movements and with technical features such as hermetic pads containing gas or fluid, mechanical components which absorb or neutralise impact or materials such as low-density polymers. Excluding: a. footwear which is designed for a sporting activity and has, or has provision for the attachment of, spikes, sprigs, tops, clips, bats or the like, with a non-injected sole; footwear involving special technology (for the precise definition, see footnote 1) b. 13 A. 1. Situation in the Community footwear industry Introduction The industry has been undergoing modernisation and restructuring for a number of years under pressure from increasing international competition and technological change. There has been a shift in EU countries towards more diversified, quality products with higher added value. This, however, does not imply – as is sometimes suggested – that the high end of the Community market is dominated by European- made top-of-the-line products, whereas the low end of the market is ‘reserved’ for imports from low-wage countries. As a matter of fact, the segment of bottom-of-the-line products has increasingly been replaced by products of medium quality – a segment in which a considerable part of the European industry is still involved and, indeed, highly competitive. Moreover, even firms which have traditionally produced for the high-end of the market are more and more obliged to complement their product range also with less-expensive models. However, the competitive strengths developed by the industry over the past few years can only be brought to bear if EU exporters enjoy effective access to world markets – both with regard to the procurement of raw materials and the actual sale of their finished products. Although the Community has made the issue of improved market access a priority in its international trade policy, the actual situation still leaves a lot to be desired, with a wide range of tariff as well as non-tariff barriers still preventing EU companies from fully exploiting their export potential. In this context, it should be noted that even industrialised countries like the United States – one of the Community's industry principal export markets – maintain tariff peaks of up to 48%. 2. Structure of the industry The Community footwear industry consists of a large number of small firms (averaging 20 workers), most of which are located in regions with a low degree of industrial diversification. However, there are certain differences from one Member State to another: German and French companies, for example, employ an average of 100 workers, whereas the average in Spain and Italy is closer to ten. The remaining Member States fit somewhere between those two extremes. The number of manufacturers in the EU as a whole has been in decline throughout the nineties, falling from 15,897 in 1989 to 14,588 in 1998 (after 14,817 in 1997). The geographical concentration of the sector, its labour-intensive character, and its considerable degree of price sensitivity with regard to low-priced imports lead to a situation where any fluctuation in the level of economic activity has major regional and social repercussions. 3. Community production, consumption and employment After a rather moderate decline by 1. 46% between 1997 and 1996, production fell by a substantial 4. 56% in 1998, thereby reaching its lowest level for years. This fall in output was – as already stated above – mainly due to a sharp decrease in exports as a result of the Asian and other international crises (-9. 74% in 1998). 14 Consumption fell by 1. 6%, while total imports remained fairly stable. As a result, the market share of EU manufacturers on the EU market fell from 51% in 1997 to 50% in 1998. Employment continued to decline in 1998, with the loss of a further 11,784 jobs. This corresponds to a 3. 93% drop compared to 1997. Table 1 1000 pairs 1995 1996 1997 1998 change 97/96 Production 1 104 339 1 104 590 1 088 485 1 038 857 -1. 46% Exports (Extra-15) 306 880 319 374 299 443 270 278 -6. 24% Imports (Extra-15) 748 067 804 412 805 592 809 549 +0. 15% Consumption 1 545 934 1 605 311 1 573 978 1 548 849 -1. 95% 313 789 307 699 299 572 287 788 -2. 64% change 98/97 -4. 56% -9. 74% +0. 5% -1. 6% -3. 93% Direct employment producers’ EU sales on internal market EC market share producers’ Market Chinese imports share of 797 764 788 490 798 650 776 521 +1. 29% -2. 77% 52 % 19 % 49 % 51 % 50 % 21 % 16. 9 % 17. 4 % 4. Trends in exports After a decline of 6. 24% in 1997, exports fell by another 9. 74% in 1998, with exports to Russia showing by far the worst performance (-24. 89% in 1998, after -20. 33% in1997). The market shares of the most important export markets of the Community remained fairly stable. 15 Table 2 1000 pairs 1995 1996 1997 1998 change 98/97 exportshar e (1997) export share (1998) Total extra-EU United States Switzerland Russia Canada Japan Saudi Arabia Norway Poland 306 880 319 374 299 443 270 278 -9. 74% 100% 100% 79 802 84 088 92 871 85 612 -7. 82% 31. 0% 31. 7% 29 341 29 325 27 265 25 519 -6. 40% 9. 1% 20 231 25 698 20 474 15 377 -24. 89% 6. 8% 11 660 9 905 12 357 10 956 -11. 34% 4. 1% 14 639 15 165 11 817 10 433 -11. 71% 4. 0% 19 964 17 857 11 293 10 123 -10. 36% 3. 8% 9 035 5 386 8 793 6 640 8 792 7 866 9 236 +5. 05% 2. 9% 7 961 +1. 21% 2. 6% 9. 4% 5. 7% 4. 1% 3. 9% 3. 8% 3. 4% 2. 6% (Products covered: CN Codes 6401-6405) 16 Exports to the Community’s main suppliers remained marginal, with China accounting for only 0. 16% of all Community exports: Table 3 1000 pairs 1995 1996 1997 1998 change 98/97 export share (1997) export share (1998) Total extra-EU Taiwan South Korea China Brazil India Thailand Indonesia Vietnam 306 880 319 374 299 443 270 278 -9. 74% 100% 100% 1 986 1 400 1 769 2 849 1 759 2 664 201 250 145 277 160 14 202 433 172 405 116 80 891 269 91 345 220 123 1 711 -2. 7% 0. 59% 0. 63% 449 423 343 173 170 87 61 -83. 2% 0. 89% 0. 17% -52. 5% 0. 30% 0. 16% +27. 5% 0. 09% 0. 13% +90. 1% 0. 03% 0. 06% -50. 7% 0. 12% 0. 06% -60. 5% 0. 07% 0. 03% -50. 4% 0. 04% 0. 02% (Products covered: CN Codes 6401-6405) Community exports that were affected most by the Asian crisis were those to South Korea (-83. 2%), Indonesia (-60. 5%) and Thailand (-50. 7%). Exports to China decreased by 52. 5%. India and Brazil showed a positive development in 1998 – after a sharp decline in 1997 – with India reaching again the (low) level that it had already achieved in 1996. The Community’s trade balance with those countries (in terms of pairs), remained extremely negative, as can be illustrated by means of export/import ratios for 1997 and 1998: 17 Table 4 imports 97 Imports 98 exports 97 exports 98 exports 97 as % of imports 97 exports 98 as % of imports 98 China Vietnam Indonesia Taiwan Thailand India Brazil South Korea 265 377 136 452 84 807 35 526 37 038 23 681 14 528 6 345 269 983 146 603 66 968 37 807 37 380 23 143 11 291 6 227 891 123 220 423 61 87 1 759 1 711 345 91 269 2 664 170 173 343 449 0. 34% 0. 09% 0. 26% 4. 95% 0. 93% 0. 38% 1. 85% 41. 99% 0. 16% 0. 04% 0. 13% 4. 53% 0. 45% 0. 75% 3. 04% 7. 21% (Products covered: CN Codes 6401-6405)The export/import ratio with China further deteriorated in 1998 – as it did for Vietnam, Indonesia, Taiwan and Thailand. The ratio for South Korea fell dramatically, from 42% in 1997 to 7. 2% in 1998. B. 1. Sensitivity to Chinese imports Trends in imports In 1998, EC footwear imports from all sources increased by approximately 0. 5%, reaching a total of almost 810 million pairs, with China slightly increasing its market share (from 32. 9% to 33. 4%), followed by Vietnam (18. 1%) and Indonesia (8. 3%). With an increase of 1. 7% (compared to 1997), China managed to outperform the rest of the world (‘all sources’) in spite of the quantitative restrictions in place. Among the main suppliers, only Vietnam and Taiwan performed better (up 7. 4% and 6. 4%, respectively), while, of course, starting from a much lower absolute level. Imports from Brazil and Indonesia, by contrast, fell sharply – by 22. 3% and 21% respectively). 18 Table 5 1000 pairs 1995 1996 1997 1998 change 98/97 Total extra-EU China Vietnam Indonesia Taiwan Thailand India Brazil South Korea 748 067 804 412 805 592 809 549 +0. 5% 295 107 338 045 265 377 269 983 +1. 7% 76 759 102 481 20 726 37 722 19 650 15 377 15 347 96 993 99 729 22 027 32 158 21 803 12 945 9 038 136 452 146 603 +7. 4% 84 807 35 526 37 038 23 681 14 528 6 345 66 968 -21. 0% 37 807 +6. 4% 37 380 +0. 9% 23 143 -2. 3% 11 291 -22. 3% 6 227 -1. 9% (Products covered: CN Codes 6401-6405) import share (1997) 100% 32. 9% 16. 9% 10. 5% 4. 4% 4. 6% 2. 9% 1. 8% 0. 8% import share (1998) 100% 33. 4% 18. 1% 8. 3% 4. 7% 4. 6% 2. 9% 1. 4% 0. 8% In 1998, approximately one third of all footwear originating in China were imported under quota: Table 6 1000 pairs 1995 1996 1997 1998 change 97/96 81 341 103 924 94 648 94 292 -8. 9% Change 98/97 -0. 4% Footwear quota 3 under Non-quota footwear Total * Quota coverage 213 767 234 121 170 729 175 691 -27. 1% +2. 9% 295 107 338 045 265 377 269 983 -21. 5% +1. 7% 27. 6% 30. 7% 35. 7% 34. 9% (* Products covered: CN Codes 6401-6405) While imports of footwear under quota remained fairly stable in 1998 (-0. 4% as compared to –8. 9% between 1997 and 1996), imports of footwear not covered by quantitative restrictions increased by 2. 9% (after a considerable decline in the preceding year). This led to a slight decline in the overall quota coverage. Broken down by CN Codes under quota, the situation is as follows: 3 Figures include imports of so-called “high-tech” shoes which are actually excluded from the quotas. 19 Table 7 Quota footwear 1995 1996 1997 1998 Change Change (pairs) 6402 99 6403 51 and 59 6403 91 and 99 64004 11 6404 19 10 TOTAL 97/96 98/97 31 348 517 48 136 893 38 878 434 34 623 222 -19. 23% -10. 94% 1 242 010 1 541 123 1 511 466 1 079 488 -1. 92% -28. 58% 15 652 713 18 676 971 23 288 824 23 488 462 +24. 69% +0. 86% 14 182 424 21 410 923 29 416 097 25 445 694 +37. 39% -13. 50% 18 915 085 14 158 153 1 552 812 9 654 874 -89. 03% +521. 77% 81 340 749 103 924 063 94 647 633 94 291 740 -8. 93% -0. 38% As a matter of fact, total imports of footwear under quota remained stable only because of a significant increase in imports of slippers and other indoor footwear with uppers of textile materials, covered under CN Code 6404 19 10. In 1997, imports of such slippers had fallen dramatically due to the imposition of provisional anti- dumping duties in February 1997 (for a period of 9 months), covering both CN Codes 6404 19 10 (i. e. slippers) and 6404 19 90 (i. e. other than slippers). The definitive measure, adopted on 29 October 1997 and applying to both China and Indonesia, excluded slippers, resulting in an increase in imports of such slippers by more than 520% in 1998. By contrast, imports from China of products falling under CN Code 6404 19 90 – which are still covered by the anti-dumping measure, but are not under quota – remained at the low 1997 level: Table 8 CN Code 1995 1996 1997 1998 Change 97/96 change 98/97 18 915 085 14 158 153 1 552 812 9 654 874 -89. 03% +521. 77% 117 947 316 120 089 613 17 830 124 17 687 917 -85. 15% -0. 80% 136 862 401 134 247 766 19 382 936 27 342 791 -85. 56% +41. 07% 6404 19 10 6404 19 90 6404 19 (total) (in pairs) Definitive anti-dumping measures were also imposed, on 23 February 1998, on certain footwear with uppers of leather or plastics, originating in China, Indonesia and Thailand. Those measures concerned certain positions of CN Codes 6402 99 (i. e. 6402 99 98) and 6403 99 (i. e. 6403 99 93, 6403 99 96, 6403 99 98), while excluding footwear for use in sporting activities. As far as CN Code 6402 99 is concerned, both China and Indonesia lost market share in 1997 and 1998, while Thailand was able to increase its exports despite the anti- 20 dumping measures in place. Vietnam became the Community’s main supplier of those products: Table 9 CN Code 6402 99 Total Extra-EU Vietnam China Indonesia Thailand (in pairs) 1995 1996 1997 1998 change 98/97 market share 1998 107 377 026 141 484 322 136 867 673 140 573 152 +2. 71% 100% 20 382 805 28 829 276 32 408 667 37 932 343 +17. 04% 31 348 517 48 136 893 38 878 434 34 623 024 -10. 95% 23 637 838 29 528 805 25 265 664 20 085 445 -20. 50% 8 999 241 10 534 893 11 765 228 14 324 934 +21. 76% 27% 25% 14% 10% Also with regard to CN Code 6403 99, Vietnam has become the main supplier of the Community, while China succeeded in maintaining its level of exports: Table 10 CN Code 6403 99 Total Extra-EU Vietnam Indonesia China Thailand 1995 1996 1997 1998 change 98/97 market share 1998 129 690 664 139 966 455 161 872 851 167 065 089 +3. 21% 100% 11 011 255 15 964 478 22 824 260 23 603 959 +3. 42% 19 094 480 19 034 263 19 695 445 18 512 334 -6. 01% 11 440 370 13 888 711 17 417 339 17 444 357 +0. 16% 14% 11% 10% 9 615 502 8 040 358 7 627 196 7 489 173 -1. 81% 4% (in pairs) 2. Import prices A comparison of the average prices of imported Chinese footwear with those of Community exports (‘Extra-15’) demonstrates the extent to which Chinese imports are undercutting prices on the Community market: 21 Table 11 Price per pair (ECU) Product 1995 1996 1997 1998 6402 99 China 4. 35 4. 81 4. 95 4. 92 Extra-15 6. 41 6. 73 7. 44 7. 87 6403 51 China 6. 74 7. 56 8. 34 10. 79 Extra-15 21. 02 21. 52 23. 50 22. 73 6403 59 China 3. 17 2. 88 2. 69 3. 05 Extra-15 18. 13 22. 03 23. 78 25. 17 6403 91 China 11. 17 12. 16 13. 69 13. 30 Extra-15 20. 88 21. 15 24. 19 24. 43 6403 99 China 9. 25 9. 54 11. 09 11. 88 Extra-15 14. 70 15. 08 16. 81 17. 96 6404 11 China 7. 17 8. 33 9. 41 9. 58 Extra-15 10. 74 12. 58 10. 24 14. 08 6404 19 10 China 0. 83 1. 11 1. 14 1. 14 Extra-15 4. 03 4. 19 4. 65 4. 24 Undercutting in % (1997) Undercutting in % (1998) 66. 5% 62. 5% 35. 5% 47. 5% 11. 3% 12. 1% 56. 6% 54. 4% 66. 0% 48. 6% 91. 9% 68. 0% 24. 5% 26. 9% In 1998, Chinese prices ranged from 12. 1% to 68% of the average prices of Community exports to third countries. Between 1997 and 1998, China’s price advantage increased considerably for CN Codes 6403 99 (from 66% to 48. 6%) and 6404 11 (from 91. 9% to 68%) due to rising prices of Community exports (and in spite of the anti-dumping duties on certain products falling under CN Code 6403 99). The elimination of the provisional anti-dumping duties on slippers (6404 19 10) had no immediate effect on prices, which remained at a level of 1. 14 ECU per pair. For CN Code 6403 51, the price differential decreased from 35. 5% in 1997 to 47. 5% in 1998. Overall, China – whose average price/unit decreased from 4. 82 in 1997 to 4. 70 in 1998 – remained the cheapest of the Community’s major suppliers of footwear (in ECU/unit): 22 Table 12 Imports China Vietnam Thailand Indonesia Total Extra-EU Exports Total Extra-EU 1995 2. 87 4. 87 7. 55 6. 57 6. 97 1996 3. 40 5. 61 8. 18 6. 90 7. 26 1997 4. 82 6. 41 8. 23 8. 98 8. 65 1998 4. 70 6. 58 8. 57 8. 79 8. 55 16. 10 17. 48 20. 03 21. 13 (Coverage: CN Chapter 64) In 1998, average Chinese prices (4. 70 ECU/unit) reached only 55% of the prices of Community imports from all sources (8. 55 ECU/unit), and 22. 2% of the average prices of European products sold on third markets (21. 13 ECU/unit). C. 1. Opinions from Interested Parties Opinion of the Community Industry According to the European Confederation of the Footwear Industry, in spite of the existence of quantitative restrictions, imports of footwear from China have continued to outperform imports coming from all third countries. Moreover, this association considers that those quantitative restrictions are not even fully utilised, which still leaves sufficient room for increases in imports from China. Furthermore, it is of the opinion that Chinese products continued to undercut European prices by a significant margin, thus putting European industry under severe pressure, which has been faced with falling production, a deteriorated export performance, and increasing job losses. For those reasons, European industry is firmly against the elimination of the Chinese quotas in question, as well as against any increases in their current levels. 2. Opinion of Importers The Foreign Trade Association (FTA) has stated that job losses in the community footwear industry are a natural phenomenon basically caused by automation and advances in information technology. It does not believe Chinese imports are a threat to the industry. D. Conclusion The footwear sector remains acutely vulnerable to Chinese imports because of their sheer volume (33. 4% of all Community imports; see table 5), their significant share of the total Community market (17. 4%; see table 1), the price gap (4. 70 ECU/unit as compared to 21. 13 ECU/unit; see table 12), and the enormous export potential of the Chinese industry. 23 In 1998, the unbalanced situation described above was further deteriorated as a result of the financial crises in Asia, Russia or Brazil, which deprived EU operators of important export markets without the possibility of turning to other markets instead. At the same time, the European Union was the only major region in the world which maintained its level of imports in spite of the economic crises experienced during the past two years, which made it the main outlet for many third-country producers whose domestic markets had fallen apart. As a result, both Community exports and Community production decreased markedly. In spite of the quantitative restrictions in place, China succeeded in outperforming the average of all Community suppliers (with +1. 7% as compared to +0. 5% see table 5). If, at the current stage, the quantitative restrictions vis-à-vis China were removed, the Community would risk inconsistencies in its overall industrial policy: On the one hand, European operators are encouraged to constantly improve their competitiveness by investing in tangible as well as intangible factors. On the other hand, the European institutions have undertaken to provide operators with a general framework which allows them to compete on a level-playing field with their competitors in a global and open market. At present, such a level-playing field does not exist, since many third countries still maintain very high tariffs, as well as numerous non-tariff barriers. If companies find no markets for their highly competitive products, they have very little incentive to invest – and to innovate – in order to continue with their (often painful) modernisation and restructuring process. Moreover, expanding markets are essential for companies trying to achieve sufficient economies of scale, thus increasing their international competitiveness by producing at lower average cost. Against this background, and taking account of the fact that the footwear industry remains an essentially labour-intensive sector, any further liberalisation of Community imports will have to go hand in hand with equivalent liberalisation efforts by the Community’s trading partners. As long as many third-country markets remain virtually closed for EU exports, the quantitative restrictions against China should be maintained so as to alleviate a situation which is characterised by a competitive environment which fails to provide a level-playing field for economic operators. 2. Porcelain or china tableware and ceramic tableware CN 6911. 10 and CN 6912. 00 Statistics and detailed information on the two positions under quota are difficult to obtain, since most producers produce a wide range of tableware products which, when they are reported, are usually reported as "tableware", that is, CN 6911 + 6912 + 6913 combined, and also because producers are usually reluctant to disclose what they consider to be commercially sensitive information to their federations. Moreover, in the tableware sector, there are many small producers which are not members of any national federation. It has therefore been necessary, as usual, to look to a number of different sources when compiling this report. 24 A 1. Situation in the Community tableware sector Structure of the EU ceramic tableware sector Originally, production of ceramic products was built up near to the source of raw materials, and energy, and where transport facilities were good. These are no longer the primary deciding factors, but the sector is still very concentrated geographically, with, for example, big concentrations in Staffordshire in the UK, the Limousin in France, northern Bavaria in Germany, and Maastricht in the Netherlands. The sector is principally made up of small and medium enterprises although larger ones do exist, such as Villeroy & Boch of Germany, and Royal Doulton and Wedgwood of the United Kingdom, which are probably the three biggest tableware producers in the world. There is a vast range of products, which differ greatly between manufacturers and depend to a large extent on public taste and disposable income. Whilst output in the tableware sector typically represents about one tenth of total output of the EU ceramics industry in value terms, it has usually accounted for something like a quarter in terms of numbers employed. It is the most labour intensive of the six ceramics sub-sectors, and is therefore particularly susceptible to the effects of unfair competition. 2. Trends in production and apparent consumption The figures directly below apply to all ceramics sectors. N. B. Due to the fact that the DEBA database no longer exists, and pending the full recovery of the former work by Eurostat, production figures for 1998 are calculated using the short-term indicators supplied by the Eurostat-European Business Trends database. Units: million ECU 1995 26081. 4 1996 25506. 9 1997 25429. 4 1998 25260. 2 4234. 2 4614. 4 5205. 5 5130. 3 1323. 1 1396. 5 1640. 7 1783. 7 Production Exports Extra-EU Imports Extra-EU Apparent 21847. 2 Consumption 23170. 3 EU sales on Domestic market EU market share Imports market share Direct employment N° companies 94. 29% 322386 2500 5. 71% 22289. 0 21864. 6 21913. 6 20892. 5 20223. 9 20129. 9 93. 7% 92. 5% 91. 9% 6. 26% 7. 5% 8. 1% 306614 2000 277234 n/a 262000* n/a 25 Import and export figures for EUR 15 are taken from COMEXT. Production and employment figures come from the former DEBA database (except * ==> first estimate by Cérame-Unie4) and the Eurostat-NewCronos database (1995, 1996, 1997 and 1998 for EUR 15 using NACE Rev. 1, 26. 2 + 26. 3 + 26. 4). In comparison, similar information on tableware CN 6911 + 6912 + 6913 Units: million ECU 1995 1996 Production 2850** 2800** 1998 1997 n/a Exports Extra-EU Imports Extra-EU Apparent 959. 9 650. 8* 678. 9 395. 0* 1014. 8 1147. 8 1091. 6 710. 5* 736. 7 448. 8* 805. 8* 875. 0 513. 7* 743. 9* 945. 7 541. 1* Consumption 2569. 0 2521. 9 EU sales on Domestic market EU market share Imports market share Direct employment n/a n/a n/a n/a 26. 4% 29. 2% N° companies 171*** n/a n/a n/a n/a n:a n/a n/a n/a 77436** 57342** Sources: imports/exports from COMEXT production and employment from Cérame-Unie CN 6911. 10 + 6912. 00 estimates by Cérame-Unie number of tableware producers which are members of Cérame-Unie * ** *** As is evident from the figures above, import penetration for all ceramic products together is It should be borne in mind, however, that Europe is traditionally a big not significant. 4 The umbrella organisation which represents the whole of the ceramics industry at EU level. The tableware sectors is represented by the FEPF, the Fédération Européenne des Industries de Porcelaine et de Faïence de Table et d’Ornementation. 26 exporter of ceramic products, and exports form an integral and indispensable part of many European companies' order books. It should be further noted that the Chinese share of extra-EU imports of all ceramic products has been climbing steadily, and accounted for 20. 1% in 1998 (in value terms – against 17. 2% in 1996). This is alarming the EU ceramics industry, since there have been imports of only very small quantities of tiles to the EU, but Chinese tile producers have built up production capacity over recent years, and have now overtaken Spain and Brazil to become the world's Imports of Chinese tiles into the EU are therefore second biggest producer, after Italy. expected to increase in the next few years. In addition, a number of current features of the tableware market environment have been signalled by industry: demand for tableware overall continues to grow in line with world population however, customers are buying fewer large services which are kept for life, as the trend towards casual dining accelerates. Tableware is therefore becoming a fashion item which is disposed of in relatively short time as fashion changes Asian manufacturers are capturing an increasing share of this market segment EU manufacturers are seeking cost including by lowering consumption of high cost – and therefore higher margin – materials, moving production to low labour cost areas (with subsequent damage to traditional employment), production outsourcing reductions, production in traditional tableware manufacturing regions reduced by $750 millions in the five years to 1997 $1 000 millions increase in Asian production over the same period EU hotelware manufacturing continues to do well, but is being hit by peak tariffs in traditional markets such as the USA – see below – a position being made worse by the fact that Chinese producers seem to be targeting the American market with low-priced imports, and virtually pushing EU producers out in some areas. 3. Employment trends Numbers employed in the ceramics industry have been decreasing steadily in recent years. Actual figures for 1998 are not all available, and in any case are more accurate for some countries than for others. At its annual meeting on 3/4 June 1999, the FEPF gave the following employment estimates for the last two years for the biggest producing countries: 27 Number’s Employed0 1997 1998 % change France Germany Portugal Spain UK Austria Netherlands Luxembourg Italy Finland 3423 17213 25000 1700 20000 600 576 914 7600 410 - -4. 4 -36. 0 3425 16541 16000 n/a 16000 -20. 0 n/a 591 925 3950 n/a +2. 6 - -48. 0 Total: 77436 57342 -25. 9 Numbers employed in the ceramics industry as a whole went down by an estimated 24. 9% between 1992 and 1997 However, the decrease in numbers employed in the tableware sector alone between 1992 and 1996 has been roughly estimated at 33. 0%, with a further drop of 25. 9% between 1997 and 1998 as can be seen from the above. This appears to have accelerated sharply in 1999, caused by a fall in domestic demand and the effects of the economic problems in Asia, and, to a lesser extent, in South America. The latter had the effect of closing off some of EU producers' traditional markets, whilst producers in these countries were looking to other markets, such as the EU, to off-load their surplus domestic production. At the same time, the strength of some currencies against the US$, in particular the GBP, has made selling into the USA more difficult, and has also led to large quantities of cheap American hotelware coming into the EU, particularly the UK, for the first time, despite statements made during the EU/US negotiations under the Uruguay Round that US producers did not export hotelware. This Round also left some very high tariff peaks on hotelware in the USA, which is a traditional market for EU producers. 28 Individual comments by Member State, where available, are shown below: United Kingdom Market share and production both down by approximately 10% in 1998 compared with 1997, with a further 5% drop forecast in 1999. Turnover in the traditional volume tableware and total employment down by 25% between 1996 and 1998, of which 20% came in 1998. Profitability halved over the same period. Late 1998/early 1999, 1 200 job losses at one of the biggest producers, 140 at another, and a third producer closed down completely with the loss of 300 jobs. N. B. it is important to bear the regional aspects in mind: numbers employed in the ceramics industry in the UK accounts for 1% of total UK employment, but in Stoke- on-Trent, the principal ceramics producing area, 51% of jobs are in the ceramics and related industries. Germany A fall of 4. 4% in 1998 over 1997. This may well represent a fall in the rate of job losses, since Germany's largest producer has had an employment reduction programme for the last three year, with probably a further 1 500 to go; unfair competition from low-priced imports cited as a principal factor. 2 other producers each closed down a factory completely. Eurostat figures, available only for Germany, indicate a loss of 25% of jobs in the "Manufacture of ceramic household and ornamental articles" sector from June 1995 to November 1998, with numbers going down from 21 857 in 1995 to 18 326 in 1996. France The French FEPF member thought that the employment situation had remained fairly stable in 1998 overall, although 3 factories closed down completely, with the loss of over 500 jobs, which were obviously compensated for in other areas. An ongoing process of restructuring and rationalisation is underway, with 25% jobs losses since 1990. Italy Numbers employed went down by an estimated 48% between 1997 and 1998. Greece 3 factories closed down completely. The only remaining Greek tableware producer is in severe economic difficulties. Portugal Numbers employed went down by an estimated 36% between 1997 and 1998, although this may be slightly exaggerated in that the figure for 1997 may have been too high. Whilst job losses in the tableware sector can not be attributed solely to imports of low-priced products, there is no doubt that this is a contributing factor, and one which has been 29 mentioned, often in press releases, as a significant factor behind closure or rationalisation decisions. B 1. Sensitivity to Chinese imports Trends in imports and exports As mentioned above, exports are very important for EU tableware producers, many of whom regularly export up to 30% of their production, although the quantity of tableware exported is generally well below import levels. The following tables show EU trade in 1998 with its biggest export markets, and its biggest importers. Extra-EU imports in 1998: EUR 15 Source: COMEXT CN 6911. 10 CN 6912. 00 Tonnes % total imports Tonnes % total imports China Taiwan Thailand Romania Poland Brazil Indonesia Malaysia Turkey Czech Rep. Philippines Hong Kong 40072 2875 3041 10668 24041 1221 4418 712 3762 20175 4051 1116 29. 1 2. 1 2. 2 7. 7 17. 4 0. 9 3. 2 0. 5 2. 7 14. 6 2. 9 0. 8 29438 13011 18193 11083 7252 3780 3707 2749 1978 927 1119 610 26. 2 11. 6 16. 2 9. 9 6. 5 3. 4 3. 3 2. 4 1. 8 0. 8 1. 0 0. 5 Total extra-EU 137692 100. 0 112175 100. 0 30 Extra-EU exports in 1998: EUR 15 Source: COMEXT CN 6911. 10 CN 6912. 00 Tonnes % total imports Tonnes % total imports 11698 27. 7 79102 63. 9 1244 1280 2453 1693 4210 1457 408 8859 946 22 2. 9 3. 0 5. 8 4. 0 9. 9 3. 4 1. 0 20. 9 2. 2 0. 05 6303 5637 4676 2344 3536 2601 1159 654 775 241 5. 1 4. 5 3. 8 1. 9 2. 8 2. 1 0. 9 0. 5 0. 6 0. 2 USA Australia Canada Japan Israel Switzerland Norway Poland Czech Rep. Turkey China Total extra-EU 42283 100. 0 123723 100. 0 So whilst imports from China remain high and constitute by far the most important source of imports of porcelain and china and earthenware, EU exports to China remain virtually nil. Imports into China continue to be negligible, principally due to own overcapacity as well as is very foreign currency considerations. substantial. For the same reasons their export potential Allegations have also been made in relation to the circumvention by Chinese exporters of the In this respect, it should be noted that the import figures above are Communities quotas. those figures which have been reported and relected by COMEXT. However, allegations have been raised that imports from China are being routed through other countries, such as Hong Kong and, more recently, Vietnam. For instance, there is no local production of ceramic tableware in Hong Kong, yet in 1998, Hong Kong exported to the EU the tonnages and values shown below: Tonnes Value (million € ) CN 6911. 10 CN 6912. 00 1116 610 2. 1 1. 2 31 ECU/kg 1. 88 1. 97 Source: COMEXT Furthermore, as the quotas are expressed in tonnes, the true extent of Chinese imports may be In this regard, it has been alleged that, according to certain laboratory testing on unclear. imported Chinese products the average weight per piece has been reduced by as much as two-thirds. That is, whilst import quotas may not have been fully taken up in terms of tonnes, the actual number of pieces of Chinese tableware being imported is alleged to have increased significantly. Unfortunately, it is not possible to verify this in COMEXT, which has no provision for reporting by individual pieces. Finally, an additional problem which European tableware manufacturers have raised is that of counterfeiting. As in previous years, allegations have been made that certain Chinese producers copy European designs, which are produced in China and sold in Europe at much lower prices than the European products. Examples have been shown in the past of Chinese products being sold in European markets, as virtually exact replicas of European products. 2. Prices Average prices of Chinese imports have usually been well below European prices both for porcelain and chinaware and for earthenware. Below is a comparison of average prices charged for imported Chinese goods, with the average price of similar products manufactured in the EU (not yet available for 1998). ECU/kg Source: Cérame-Unie members 1995 1996 1997 1998 CN 6911 Chinese 1. 10 1. 19 1. 41 n/a European 3. 39 6. 72* 10. 86** n/a CN 6912 Chinese 1. 10 1. 17 1. 43 European 2. 06 2. 06* 2. 12** n/a n/a * ** France and Portugal only. France only. For the two specific products subject to quota, Chinese prices compared with the average intra-EU levels in 1998 were: ECU/kg Source: COMEXT CN 6911. 10 CN 6912. 00 Chinese Intra-EU 5. 30 2. 49 1. 31 1. 50 32 As can be seen from the above figures, the existence of quotas may have limited the quantity In of Chinese imports, and there are signs of small increases in Chinese selling prices. general, European prices have, however, come increasingly under pressure, not only because of the presence of low priced imports notably from south east Asia and central and eastern Europe, but also because there is significant production over-capacity in the European Union. C. 1. Opinions from Interested Parties Opinion of the Community industry The European ceramic tableware sector is represented at EU level by the "Fédération Européenne des Insdustries de Porcelaine et de Faïence de Table et d'Ornamentation” (FEPF), which in turn is a member of the umbrella EU ceramics federation, Cérame- Unie. Cérame-Unie, which estimated that it represents around 75% of all EU tableware producers (NB there are very many unaffiliated sumall manufacturers), remains very strongly in favour of the continuation of the quotas into 2000, and with no increase on 1999 levels. 2. Opinion of Importers The Union of Glass and Pottery Wholesalers Associations and the Foreign Trade Association, on the other side, believe that the persistence of the quotas on Tableware is no longer necessary since the overall state of the European Industry has significantly improved as a result of rationalisation, downsizing and relocation of production to East and Central Europe and the Far East where hourly wage rates are 70% to 80% lower than in the Community. D. Conclusion It is clear from the above the EU tableware sector remains sensitive because of the high volume of low priced Chinese imports and their substantial disruption potential. The EU ceramic tableware sector is continuing a hard rationalisation process in order to increase its productivity and competitiveness, and during this sensitive period, it is particularly susceptible to the effects of low priced imports, a further reason why quotas should remain, and at levels the same as for 1999. 33 III. China's trade liberalisation and WTO accession The Community's overtures to China regarding the removal of this country’s 385 remaining quotas have been made within both the bilateral and WTO context. Either way, the Community is not yet able to ascertain a program for the phase-out of China's quotas that comes near to matching the EU's own. The Commission has indicated repeatedly that it expects their quotas to be removed completely by year 2005 and that the Community would match any earlier removal of them by liberalising our own quotas. The Chinese have acknowledged their intention to abolish the quotas by 2005 and to remove a limited number of them before that date, provided that China’s WTO accession happens in the near future. Their negotiators have often questioned the 2005 deadline, arguing that it depends on early WTO membership. the management of is often arbitrary and In addition, untransparent. The Commission has repeatedly asked China to adopt uniform treatment for all importers and exporters when allocating quotas. So far, the existing unsatisfactory management of quotas rules remain in place. the Chinese quotas the Commission has clearly indicated to the Chinese side that a Furthermore, in the access to their market could play a key role in substantial improvement considering a resumption of the liberalisation process of the remaining EC quotas. To this date, this has not materialised IV. Overall conclusions From the information it has gathered the Commission has drawn the following conclusions: 1. In general terms the sectors covered by the quantitative restrictions have made efforts that have borne fruit in terms of restructuring production and improving the quality of the products under quota. However, while the European producers are continuing in this effort the Footwear and Tableware sectors remain particularly sensitive: - The overall situation is precarious: both industries are affected in varying degrees by stagnating production, declining sales and exports, closures and job shedding. - The sectors concerned are labour-intensive, fragmented industries that are particularly vulnerable to competition from low-cost countries and have already lost a large share of the Community market to them. - The industries are engaged in restructuring exercises which look promising but are costly and difficult to carry out - a waive of low-priced imports during this particularly vulnerable situation would condemn them to failure. 2. Chinese competition, in general, remains a real threat: 34 - China has enormous - and growing - production and export capacity in the sectors covered by quantitative restrictions and its exporters would, in their absence, soon be in a position to unleash huge quantities on the Community market. - Imports from China had already seized sizeable market share, or were in the process of doing so, when quantitative restrictions at Community level were introduced. - The prices of imported Chinese products remain much below those of comparable Community products. They are also well below those of other Community suppliers. - Frequent occurrences of counterfeiting in the case of some products, namely porcelain and ceramics, further distort competition. - An additional consideration is the particular nature of the Chinese economy. China has been striving, over the last few years, to liberalise its trade regime and open its economy to the world. These measures represent important steps forward, however, the Chinese authorities still exercise great influence on the operation of the Chinese industry: e. g. artificially low prices that do not reflect the real economic cost of the products concerned and export strategies that are governed by not strictly commercial considerations. On the import side, China maintains high tariffs on many consumer products, but the more prohibitive restrictions stem from non-tariff barriers such as quotas, licence requirements, restrictions on foreign currency and technical barriers. Products may be imported only by foreign trade corporations that are authorised, and essentially controlled, by the Central Government. the abolition of the remaining quantitative There is thus reason to believe that restrictions would lead to a renewed upsurge in imports from China and a further dangerous weakening of the market position of the Community industry concerned. As regards the level of the remaining quotas, an examination of the actual use of import licences by Community importers shows that unused quantities are substantial, ranging from 15 to well over 30%(*) of total quotas. While a part of these unused quantities are likely to result from the allocation of very limited quantities to "non traditional" importers (the latter renouncing to import quantities that they consider as not economically significant), a large portion thereof appears to correspond to traditional importers' decisions not to fully use their import licences. For certain sub- categories of footwear (slippers and certain synthetic and leather shoes), it is true that such decisions may have resulted in 1997 and 1998 from the existence of anti- dumping measures or pending investigations. This is however not true for most of the products under quotas for which unused quantities were found to be substantial. In these circumstances, the Commission considers that it can be assumed that the overall quantities available are not insufficient to cover the importers' needs and do not call for an immediate increase. As explained earlier in this report, a readjustment of the allocation method, importers, has been implemented with the effect as from 1/1/2000. The Commission believes that such a readjustment, together with the efforts already made with a view to correcting the existing imbalance between traditional and non traditional importers, is likely to to the benefit of non traditional (*) With the exception of slippers (CN 6404 19 10). 35 improve the overall use of import licences and thus to result quantities actually imported. in an increase of Accordingly, while keeping in mind the objective of eventual liberalisation of the quotas, in tandem with reciprocal and equivalent efforts on the Chinese side in the context of their efforts to join the WTO at an early stage and their multilateral or bilateral negotiations with the Community to phase out the quotas on both sides over an agreed time-frame, the Commission considers it appropriate to recommend that their level remain unchanged in 2000. 36 4. CHAPTER 3 IMPLEMENTATION AND MAINTENANCE OF SURVEILLANCE MEASURES I. Purpose of surveillance measures The Council introduced these measures to keep imports of a variety of products under closer observation in cases where the trend gave cause for concern but was of no immediate danger to the Community industry. II. Implementation Prior Community surveillance is carried out through a system whereby licences are automatically issued free-of-charge for any quantity requested within five days of the lodging of a request by a Community importer. Regulation (EC) No 519/94, as amended by Regulation (EC) No 139/96, brought in a standard simplified Community surveillance document which reduced to a minimum the formalities to be accomplished by importers and Member States in connection with imports under surveillance. In May 1997, following the conclusions contained in the Commission's second report, the Council decided by its Regulation (EC) No 847/97: - to remove a range of products of which the imports in 1995 were lower than in 1994, from the list of products subject to Community surveillance; - to insert the products in respect of which quotas were abolished (toy parts and accessories and glassware as from 1 January 1998) in the list of products subject to prior Community surveillance. In May 1998, following the conclusions contained in the Commission's third report, the Council decided by its Regulation (EC) No 1138/98 to insert toys, in respect of which quotas were abolished, in the list of products subject to prior Community surveillance. 37 III. Trends in imports of products under surveillance The table below gives import figures, in thousands of ecus, for products under surveillance in 1998, excluding certain "hi-tech" footwear, and sets them against the 1997 figures. CN code Description 1997 1998 Imports China/Extra- EC (1998) 1032 4108 20969 58468 5345 8691 11064 81391 27684 13571 15291 8597403 8892395 81. 893 822 53519 370487 121. 564 13560 517529 2302 32463 15918 27712 22900 66. 54% 20. 82% 60. 29% 80. 52% 73. 21% 28. 34% 15. 88% 91. 97% 23. 77% 43. 03% 29. 15% 48. 64% 31. 65% 73. 78% 0. 15% 20. 61% 69. 08% 71. 05% 40. 26% 64. 24% 18. 65% 52. 68% 32. 70% 64. 70% 30. 87% and their 60756 articles of 79905 2827 10 00 Ammonium chloride 2905 49 90 Other polyhydric alcohols 2918 14 00 Citric acid 2941 30 00 Tetracyclines derivatives 2941 40 00 Chloramphenicol 3204 13 00 Basic dyes. 3204 15 00 Vat dyes. 3604 Pyrotechnic articles 3905 30 00 Polyvinyl alcohols 4203 29 91 Gloves 4203 29 99 6402 19 6403 19 6913 10 8712 00 9503 30 9503 41 9503 49 9503 60 9503 90 9504 40 9603 29 9603 30 9603 40 9603 90 Gloves Footwear1 Footwear1 Ornamental porcelain Bicycles Construction sets Stuffed toys Toys representing animals Puzzles Toys Playing cards Brooms and brushes Brooms and brushes Brooms and brushes Brooms and brushes Source: EUROSTAT 1 measured in pairs 1239 7121 17347 6352 9710 15125 84004 24301 16028 14481 12129432 5884694 701 55874 285568 88895 13620 444711 3344 29621 14385 24655 17001 38 In the case of certain "hi-tech" sports footwear imports Eurostat figures do not distinguish between those under surveillance and those not, so the Commission can only refer to the surveillance documents issued in 1998: ex 6402 99 2. 769. 168 pairs ex 6403 91 et 99 12. 108. 575 pairs ex 6404 11 13. 647. 636 pairs Total 28. 525. 379 pairs IV. Should surveillance measures be maintained? The figures provided here show that the share of imports from China of all but one(*) of these products is still very high. The Commission believes that prior surveillance should be maintained for these products. (*) Namely "bicycles", a product subject to definitive anti-dumping duties and whose sensitivity cannot therefore be solely assessed in terms of imported volume. On 10 September 1998, an expiry review of the anti-dumping measures in force in respect of Chinese bicycles was initiated. Pending the outcome of the expiry review, it appears reasonable, despite the limited share held by Chinese imports, not to lift the prior surveillance measure in place. 39 5. CHAPTER 4 CONCLUSIONS AND PROPOSALS OF THE COMMISSION In view of the above, the Commission believes that the system of quantitative restrictions and surveillance measures set up under Regulation (EC) No 519/94, as last modified by Regulation (EC) No 1138/98, should be maintained: No change in the structure and the level of the remaining quotas appears to be warranted while the product coverage of the surveillance should also remain unchanged. 40