EU Shoe Duty Trips Up Retailers

BRUSSELS -- At the promod fashion store here, saleswoman Coralie De Schrynmakers points to a pair of gold, soft-leather ballerina-style slippers.

Under a recent ruling to protect European shoemakers, the size 37 Vietnamese-made slippers are being slapped with a duty that will rise to 16.8% by October. If the same shoe were labeled a children's shoe, however, it could enter Europe at the regular 8% duty. That distinction threatens to cause chaos at European customs borders and in delicate Sino-European trade relations this summer.

"It's impossible to tell an adult shoe from a children's shoe," says Ms. De Schrynmakers. "Women like to buy this low-heel style because it's comfortable and stylish. And schoolchildren do, too."

European Union Trade Commissioner Peter Mandelson is attempting to balance calls from Europe's retailers for access to cheap Asian products, and, on the other hand, from European manufacturers wanting competitive protection from them. As tensions between the two camps mount, Mr. Mandelson is imposing strict-sounding measures that contain numerous loopholes -- such as children's shoes getting into Europe without the extra duty. Often, the result is confusion, which insiders say benefits clever retailers who are able to circumvent the restrictions.

"Mandelson is trying to please as many people as he has to [to] get his measures accepted," says Laurent Ruessmann, a trade lawyer in Brussels at Sidley Austin LLP, which represents the Footwear Association of Importers and Retailchains. "So he puts in place exemptions, and these exemptions create uncertainty."

Mr. Mandelson's mandate to negotiate Europe's trade agreements on behalf of the bloc's 25 governments makes him one of the most powerful men in the EU's capital. His oft-repeated agenda is to help Europe adapt to the new reality of low-cost manufacturers in the East by shifting the focus away from traditional manufacturing in Europe. Yet political realities mean he must make concessions to Europe's manufacturing core in France, Italy and Spain. Mr. Mandelson needs the backing of European governments and, by extension, their industry lobbies during global talks being held at the World Trade Organization.

Mr. Mandelson's first balancing act was quotas on Chinese textiles. Pressed by Italian, French and Spanish textile makers, Mr. Mandelson won a concession from China to limit its textiles exports last June. Outraged European retailers responded with massive orders from their Chinese suppliers. As textiles in excess of the new ceiling crowded European ports and borders, Mr. Mandelson loosened the quotas. "The final deal meant that retailers got in many more clothes than the original ceiling allowed," says Alisdair Gray, Brussels chief of the British Retail Consortium.

Inexpensive shoes coming to Europe from Vietnam and China pose a similar challenge. Eager to appease cobblers in Southern Europe, Mr. Mandelson imposed provisional tariffs this month. Still, many European producers are unhappy, saying the new duty falls far short of a 100% tariff that Brussels often slaps on goods sold at artificially low prices. European Commission investigators have found that China and Vietnam give their shoemakers tax holidays, cheap loans and below-market rental conditions, which in turn give them an unfair advantage over European shoemakers. This is illegal under world trade rules. But retailers sourcing in Asia and the producers that moved their facilities to Asia during the past three years say the duties pinch profit margins.

In a bid to please both sides, Mr. Mandelson exempted leather high-tech sports shoes and leather children's shoes. High-tech sports shoes account for 69% of the value of all leather-shoe imports from Asia. More than three-quarters of these come from China and Vietnam. Leather children's shoes from China and Vietnam made up 16% of shoes imported by Europe in 2005.

Not surprisingly, the proportion of children's shoes is expected to rise as retailers opt for styles that also appeal to adults. Here, size is everything. Like Ms. De Schrynmakers at the Promod store, officials will find it difficult to distinguish between adult and children's shoes: European law states any flat-heeled shoe up to a size 37.5 qualifies as a child's shoe. In Italy, the average female shoe size is 37.