Costume Importers Win Court Battle

The Court of Appeals for the Federal Circuit (CAFC) has ruled that imported Halloween costumes are “festive articles” and therefore not subject to tariff and quotas.

The Customs classification of costumes has been the subject of controversy for a number of years. In 1994, as a result of another ruling, Halloween costumes were first defined as “festive articles,” and became duty free. Rubie’s Costume Co., which makes most of its costumes domestically, fought this ruling, maintaining that it was unfair that Rubie’s paid tariffs on fabric imported from Asia while its competitors imported costumes without tariffs. In 2002 a U.S. Court of International Trade ruled in favor of Rubie’s and redefined all costumes as “fancy dress” and thus subject to quotas and tariffs. Now that ruling has been overturned and costume importers will again be able to import Halloween costumes duty free.

Attorney Lenny Feldman an-swered questions on the ruling for Selling Halloween.

Feldman is a senior associate in the firm of Sandler, Travis & Rosenberg, P.A., an international trade and customs law firm that assists clients in moving goods and personnel across international borders. He was a senior attorney at the U.S. Customs Service from 1991 to 2000, handling Penalties, Value and Classification matters. Feldman has trained customs and trade officials and consulted with industry representatives throughout the world on these topics as well as on risk assessment, compliance mechanisms and automation. He can be reached at lfeldman@strtrade.com.

What did the Court rule?
The U.S. Government decided to appeal the decision of the lower Court, the Court of International Trade (CIT), which in 2002 had classified costumes as “fancy dress” a subcategory of “wearing apparel” subject to tariffs and quotas. The appellate court, or Court of Appeals for the Federal Circuit (CAFC), upheld Customs’ previous classification of such items as “festive articles” and rejected the CIT’s ruling that they constitute “fancy dress.” The CIT had ruled that it did not need to grant deference to Customs’ decision because it was “both logically and factually defective.” However, the CAFC disagreed, ruling that Customs decision was adopted pursuant to a deliberative notice-and-comment rulemaking process, was the result of Customs’ “specialized experience” in interpreting the tariff regarding the subject merchandise, and was supported by a logical and well-reasoned explanation based on the difference between flimsy and durable textile articles. The CAFC added that this ruling was neither a sudden and unexpected change nor a failure to take account of a prior inconsistent interpretation.

Did all the judges agree?
Actually, one of the three appellate judges dissented, noting that there is nothing in the common understanding of wearing apparel that suggests clothing must be capable of many wearings to be considered “apparel.” The judge commented that he could not draw a discernable line between garments that are well made and those that are crudely made or flimsy as “some garments wear like iron, and some hardly seem designed to survive the first trip to the dry cleaner.”

What does the decision mean for importers?
In light of the CIT’s initial ruling, Customs classified certain imported textile costumes as “fancy dress” and “wearing apparel” and assessed the appropriate duties. However, Customs suspended liquidation of entries of all the goods since that date pending a final resolution of this court case. As it now appears the CAFC’s decision will stand, affected importers should be taking the necessary steps to receive a refund of all appropriate duties paid since the 2002 ruling. In some cases, such as where Customs already has liquidated the entry, this could involve filing a protest to obtain a duty refund. Customs imposes strict time limits to do this — if an importer is too late, it could miss out on duty refunds. This doesn’t mean Customs will go back and check each entry to be sure all merchandise was entered duty free as “festive articles.” Most likely Customs’ automated system will liquidate the entries as they were entered at the time. It will be up to importers to review all their entries no later than 90 days from liquidation to make sure they get the refunds they may be entitled to receive.

What does this mean for retailers?
Because their importer-suppliers will avoid the additional 15 percent duty that would have applied had the Court considered the costumes as “wearing apparel,” wholesale costs are not likely to increase this season.

Is the decision final?
Because one of the CAFC judges dissented, this raised the possibility that Rubie’s could seek a rehearing by the CAFC or even appeal the decision to the Supreme Court. However, Rubie’s executive vice president Howard Beige has told Selling Halloween he does not plan to appeal the ruling.

Does the ruling leave any gray areas?
The decisions do not provide a “magic pill” to cure the ambiguities of Halloween costume classification. For instance, Customs has stated that “fancy dress” refers to elaborate or substantial costumes such as “expensive, well-constructed ballroom gowns, safari outfits, certain types of uniforms, and other adult garments” as opposed to “flimsy and non-durable textile costumes whose principal intended use is for a one time festive occasion.”