Nike 2011 Annual Report Download - page 6

6 NIKE,INC.-Form10-K
PARTI
ITEM1Business
International Operations and Trade
Our international operations and sources of supply are subject to the usual
risks of doing business abroad, such as possible revaluation of currencies,
export and import duties, anti-dumping measures, quotas, safeguard measures,
trade restrictions, restrictions on the transfer of funds and, in certain parts
of the world, political instability and terrorism. We have not, to date, been
materially affected by any such risk, but cannot predict the likelihood of such
developments occurring.
The global economic recession resulted in a signifi cant slow-down in international
trade and a sharp rise in protectionist actions around the world.These trends
are affecting many global manufacturing and service sectors, and the footwear
and apparel industries, as a whole, are not immune. Companies in our industry
are facing trade protectionist challenges in many different regions, and in nearly
all cases we are working together to address trade issues to reduce the impact
to the industry, while observing applicable competition laws. Notwithstanding
our efforts, such actions, if implemented, could result in increases in the cost
of our products, which could adversely affect our sales or profi tability and the
imported footwear and apparel industry as a whole. Accordingly, we are actively
monitoring the developments described below.
Footwear Imports into the European Union
In 2005, at the request of the European domestic footwear industry, the European
Commission (“EC”) initiated investigations into leather footwear imported from
China and Vietnam. Together with other companies in our industry, we took the
position that Special Technology Athletic Footwear (STAF) (i)should not be within
the scope of the investigation, and (ii)does not meet the legal requirements
of injury and price in an anti-dumping investigation. Our arguments were
successful and the EU agreed in October2006 on defi nitive duties of 16.5%
for China and 10% for Vietnam for non-STAF leather footwear, but excluded
STAF from the fi nal measures. Prior to the scheduled expiration in October2008
of the measures imposed on the non-STAF footwear, the domestic industry
requested and the EC agreed to review a petition to extend these restrictions
on non-STAF leather footwear. In December2009, following a review of the
ongoing restrictions, EU member states voted to extend the measures for an
additional 15months, until March31,2011. In early 2011, the EC declined to
further extend the measures and since April1,2011 these restrictions have
been terminated. The EC noted that it will be monitoring leather footwear
imports from Vietnam and China over the next 12months and it is hoped
that any increases will not result in renewed trade defense actions by the EC.
On February3,2010, the Chinese government announced it would seek to
refer the EU decision (both on the original measures and subsequent review
decision) to the World Trade Organization (“WTO”) for its further review and
decision. On May18,2010, the Dispute Settlement Body of the WTO agreed
to establish a panel to rule on China’s claims against the EU with respect to
theabove anti-dumping measures. The ruling from the WTO panel is expected
in late Julyor August2011, after which either party may accept or appeal
the fi ndings.
Footwear, Apparel and Equipment Imports into Brazil and Argentina
At the request of certain domestic footwear industry participants, both Brazil
and Argentina have initiated independent anti-dumping investigations against
footwear made in China. Over the last twoyears, we have been working with
a broad coalition of other companies in our industry to challenge these cases
on the basis that the athletic footwear being imported from China (i)should
not be within the scope of the investigation, and (ii)does not meet the legal
requirements of injury and price in an anti-dumping investigation. In the case of
Argentina, in 2010, the fi nal determination made by the administering authorities
was favorable to us. In the case of Brazil, the administering authorities agreed
to impose an anti-dumping duty against nearly all footwear from China, which
we believe will impact all brands in the footwear industry. Although we do not
currently expect that this decision will materially affect us, we are working with
the same broad coalition of footwear companies to challenge this decision in
domestic Brazilian courts as well as international forums such as the WTO.
Many products, including footwear, apparel and equipment products, that we
and others in our industry import into Argentina and Brazil are subject to the
WTO non-automatic licensing requirements, which means that it may take up to
60days for those products to clear customs and enter into those jurisdictions.
From time to time, in addition to these WTO licensing requirements, these
jurisdictions impose further importation restrictions or limitations. As a result,
we have experienced delays in our ability to import our products or it has taken
longer than the time allowed under the WTO for us to import our products.
To date, our business has not been materially affected by these restrictions or
delays. In the future, however, if we are unable to import our products into these
jurisdictions due to these or other restrictions or if we experience increasing
or more frequent delays beyond the WTO-permitted 60days to import our
products, our business could be materially affected.
Footwear, Apparel and Equipment Imports into Turkey
In 2006, Turkey introduced safeguard measures in the form of additional
duties on all imported footwear into Turkey with the goal of protecting its
local shoe manufacturing industry until August2009. In June2009, Turkish
shoe-manufacturers submitted, and the Turkish Government agreed to
review, a request for extension of the safeguard measures claiming that the
rehabilitation process of the local Turkish industry was interrupted due to the
continuing increase of footwear imports. Despite the importers opposition to
the continuation of the safeguard measures, the Turkish authorities extended
these safeguard measures until August2012, but reduced the duty from $3per
pair of footwear to $1.60 per pair of footwear.
In 2011, two new safeguard measures and reviews were initiated by the Turkish
Undersecretariat of Foreign Trade (“UFT”) on apparel and equipment imports.
In January2011, the UFT began an investigation on apparel imports that
could result in a 20-30% increase in import duties applied to imported apparel
products, regardless of country of origin and with only a few exceptions for
countries that currently have a Free Trade Agreement with Turkey. A decision is
expected in late July2011 and if approved, these higher import duties will be in
place through July2014. Together with other companies in our industry, we are
advocating for exclusion of certain apparel products used for sporting activities
that cannot be manufactured in Turkey and therefore should not be subject
to a higher import duty. In February2011, the UFT began a review of existing
safeguard measure on travel goods, handbags and similar accessories and
containers listed under applicable regulations. One Turkish bag manufacturers
association has requested the continuation of the safeguard measures through
April2014, with the application of an additional import duty of 2.70 USD/kg
(max. 4.25 USD/unit), regardless of country of origin. Together with other
companies in our industry, we are advocating for the exclusion of non-leather
bags from the scope of the continued safeguards.