BUILT-IN CONFLICTS BETWEEN PRODUCERS AND IMPORTERS IN HOME COUNTRIES

1. BUILT-IN CONFLICTS BETWEEN PRODUCERS AND IMPORTERS IN HOME COUNTRIES By Professor Sylvain Plasschaert

2. SOME CASES OF BUILT-IN CONFLICTS

3. 1. BICYCLES (2004) EBMA (European Bicycle Manufacturers Assocation) versus ETRA (European Two-wheel Retailers) 2004 re bicycles manufactured in Vietnam The press reported both the complaint by EBMA and the rejoinder by ETRA, both of which were reported on the same page The bicycles were manufactured in Vietnam by Taiwanese firms

4. 2. LADIES UNDERWEAR (2003) • Manufacturers in the USA had secured safeguard quotas against surging imports from China • Importers (mainly large distributors) protested promptly • Almost no longer manufacturing in the USA, which was outsourced and subcontracted to Honduras, where fabrics and elastics were sent and processed into goods re-exported duty-free to the USA

5. 3. STEEL PRODUCTS (2006) • This sector is frequently targeted by complaints about dumping • European producers of steel urged protection against imports from China (with rapidly growing output), when they themselves reduced production • Users of (semi-transformed) ‘input goods’ protested. They had difficulty obtaining supplies from Europe; same-quality products from China were cheaper • Membership of steel sector associations comprises both importers and users

6. 4. THE SHOE SAGA (2006) • Until end of 2004, the EU applied quotas against Chinese imports • The European Commission imposed provisional anti-dumping duties on some imports of leather shoes footwear from China and Vietnam, subsequently transformed into a 2-year duty • Approved by 9 against 12 members and 4 abstentions • Rift between Northern and Southern member-states (whereto shoe manufacturing had been relocated in the seventies)

7. 4. THE SHOE SAGA (2006) • The duty increased the import price by 1 Euro • This was objected by a.O. The Footwear Association of Importers and Retail Chains and Eurocommerce • The measure has been renewed for 18 months in Dec. 2009

8. RELEVANT PARAMETERS • Protective measures are an age-old phenomenon • IMPORT DUTIES are also being applied as a source of tax revenue • Today it is no longer used for import goods, exclusively produced in a single country but in a globalizing world , because ….

9. a) MULTINATIONALISATION OF ENTERPRISES • Production abroad geared overwhelmingly to host country market • Not to re-export (of labor-intensive goods or components ) • In own affiliates or joint ventures • Or through local contract manufacturers • → “made in China” ╪ “made by China “

10. b) FRAGMENTATION :PRODUCTION CHAIN OF FINAL  GOODS INVOLVES SEVERAL COUNTRIES Ex. Nokia handles 100 bln components for its 900.000 mobile phones Finalized ‘made in China’ products contain much less value added in China Domestic content share of ‘export’ processed (output only 18 % in 2006 and mainly operated by foreign –invested firms) → “made in China” ╪ “full value added within China”

11. c) PRODUCTION PROCESS INVOLVES THREE STAGES • 1. PRE MANUFACTURING • Research, design and development • 2. MANUFACTURING PROPER   • 3. POST-MANUFACTURING • Marketing to the consumers or users, directly or through intermediaries • Significant mark-up at retail stage

12. d) VARIOUS PARTIES INVOLVED SAME MULTINATIONAL with own production abroad GLOBALIZED FIRM which outsources manufacturing LOCAL CONTRACT MANUFACTURER TRADITIONAL IMPORTER Has only contact with exporting firm in host country Many firms in textiles, shoes, furniture in EU abandoned manufacturing and turned into traders/importers

13. TRADE DEFENCE INSTRUMENTS URGED BY PRODUCERS

14. Under WTO rules: a) ANTI-DUMPING • Dumping = “introducing products…at less than the normal value” • Anti-dumping investigations and actions proliferate, not only by ‘old’ industrial, but also by ‘new’ industrial countries, including India and China • China is major targeted country • Academic research is critical of anti-dumping actions, typified as veiled protectionist moves

15. Requests for anti-dumping measures are often protested by anti anti-dumping requests and representations • Anti-dumping measures must be based on proven ‘material injury’ to the complainant home-country producers • China not viewed as a market economy. ‘Analogues’ (ex. Brazil) unfavorable to China • EU also applies the ‘Community Interest’ test: the interests not only of producers in home country, but also those of importers, users and consumers should be taken into account

16. b) COUNTERVAILING (= ANTI-SUBSIDY MEASURES)c) SAFEGUARDS AGAINST IMPORT SURGES

17. GENERAL COMMENTS

18. THE CANONS OF INT’L TRADE THEORY CANNOT BE FAULTED : • Sourcing products from the most efficient producer enhances global welfare and should not be artificially thwarted • Provided, and to the extent the lower costs of production percolate in lowered prices, the consumers of final goods enjoy higher real incomes. And the users of intermediate inputs can buttress more efficient production processes

19. Their cheaper purchases release purchasing power for other outlays, allowing to reallocate resources to sunrise sectors – apart from holding inflationary tendencies in check • The benefits of free trade for consumers and users are widely spread over many consumers and are much less visible than the immediate losses of jobs, output and profits in out-competed domestic firms. Psychologically, the wage component in the value added chain appeals more to public opinions than the other components of the chain and adds readily political weight to claims for protection

20. International trade should also be based on rules of fairness. This does not imply equalized wages, but respect for some generally acceptable international labour standards • Where is the value mainly produced? In China? In the EU? To what extent are ‘pure’ producers in EU protected?