Financial Times - Shoe firms get into the race

Footwear manufacturers say anti-dumping duties imposed by the European Union (EU) against Chinese and Vietnamese footwear have opened a window of opportunity for Sri Lanka.

Sri Lankan footwear exports are much smaller than garment exports but footwear is also a beneficiary of the EU’s GSP+ scheme. Now, the industry says the GSP+ together with the anti-dumping duties against low cost Chinese and Vietnamese goods have opened up new inroads into lucrative European markets.

“The anti-dumping duties put by the EU on footwear from China and Vietnam is very good for us. We also have the GSP+. But our people are not using this opportunity,” says the Chairman of the Sri Lanka Footwear Association, Chandralal de Silva.

The EU’s GSP+ scheme allows Sri Lankan companies to export footwear duty free into Europe. The anti dumping duties are also expected to work in Sri Lanka’s favour by increasing the prices of Chinese and Vietnamese goods that compete against Sri Lankan exports. The UK is Sri Lanka’s largest export destination for footwear in the EU, followed by Italy, France and Germany. Exports to Europe in 2005 were around Rs 874 million.

China is currently the biggest footwear exporter in the world and Vietnam is now number two. However, these two countries that produce large quantities of footwear at very low cost, were accused of ‘dumping’ their goods at low prices, into European markets. In April this year the EU announced that it would slap provisional anti-dumping duties against Chinese and Vietnamese footwear to counter dumping attempts.

Anti-dumping duties are another set of duties that are added onto exports, on top of the standard European customs duties. China must now pay an additional 19.4 percent in duties and Vietnam must pay an added 16.8 percent in anti-dumping duties before their shoes can enter EU countries. The added layer of duties will effectively put up the retail prices of footwear made in China and Vietnam. The EU has also not specified a time limit for the current provisional anti-dumping duties but as low cost footwear flooding European markets are hurting European footwear manufacturers, the duties are expected to hold for some time at least.

Footwear exporters point out that although production costs are higher in Sri Lanka than in China and Vietnam, the combination of duty free exports under the GSP+ and the price increase of Chinese and Vietnamese exports, will make Sri Lankan footwear more price competitive.

However, Sri Lanka’s footwear sector is unable to make use of the opportunity. The local industry is not geared to grab the opportunity as the shoemaking craft is still very much a small, traditional industry.

“As far as I know, although the GSP+ was available for one year, only a few companies have used it and at the moment only about 10 companies are exporting footwear from Sri Lanka at all,” says De Silva.

Although there is a ready made market opportunity, at least in Europe right now, Sri Lankan footwear manufacturers say domestic production capacities need to expand to cater to potential growth in demand.

“This is not just with regards to exporting to the EU. We can get orders to export to the US. But all these companies want large quantities. We don’t have the facilities to produce large quantities. In Sri Lanka we are, for the most part, still using traditional methods,” explained de Silva.