Wednesday, February 15, 2012

CIT Dismisses HTS Gender Case

The long running effort by some importers to show that differing rates of duty for men's, women's, and children's gloves, footwear, and apparel are unconstitutionally discriminatory has hit another bump. Specifically, the Court of International Trade has dismissed Rack Room Shoes v. United States.

Just by way of example, consider leather gloves. Men's gloves of 4203.29.30 are subject to a duty rate of 14%. Other gloves, meaning gloves for women and children, are classified in 4202.29.40 and are subject to a duty of 12.6%. That means that every time I buy imported gloves for my manly hands, someone in the supply chain paid an extra 1.4% in costs added on by the United States government as a direct result of my Y-chromosome. We can assume that the rational economic actors in the supply chain have passed that extra cost along to me. When a woman buys gloves for her dainty lady hands, there is no such burden on her supply chain.

On its face, this seem wrong and, frankly, un-American (in my liberal, politically correct world view). Why should the United States be imposing an additional tax burden on me and my hands that is not imposed equally on a woman or child? If you asked the average American on the street whether that would be legal, I suspect the answer would be a resounding "No." But, we are not asking the man or woman on the street. Instead, this issue is in Court and the law requires more than the general notion that the law should treat men and women the same and not unfairly discriminate against children without some good reason.

In a previous case, the Court of Appeal for the Federal Circuit held that this difference in the tariff rates is not "facially discriminatory." That is because the distinction is based on the product, not the gender of the purchaser. This makes some sense because there is not an obvious and necessary connection between the importer of the gloves, shoes, or clothing  (i.e., the taxed party) and the ultimate purchaser. It is just as likely that the importer is a gender-less corporation. Even in Mitt Romney's world where corporations are people too my friend, corporations do not have gender-based rights. Another reason this is not facially discriminatory is that a man might be the importer of women's gloves. Remember, the statute does not create a higher rate of duty for "gloves imported by men."

Once the Court reached the conclusion that the tariff is not facially discriminatory, the burden on the plaintiff is much higher. Simply showing that the discrimination has a disparate impact will not be enough. Instead, the plaintiff needs to assert facts showing a governmental intent to discriminate. And that, as you might guess, is a problem.

The first fact alleged to show discriminatory intent is that the United States government could have selected any other criteria on which to impose this duty difference. Since it chose gender and age, it must have intended to discriminate. I read that to mean that if the government wanted to burden bigger manly gloves more than dainty lady gloves, it could simply have differentiated between gloves based on size or weight. Since it did not do so, the government must have intended to put the burden on men.

The second argument was based on a governmental report from 1960 indicating that gender based tariff rates were of questionable economic justification. The Court of International Trade rejected that argument as well, holding that the report was not evidence of any Congressional intent behind the current tariff schedule.

Based on this analysis, the Court found that the plaintiffs had failed to assert facts that, if true, would plausibly give rise to an entitlement to relief. That is the standard the Supreme Court has said must be met for a case to move on in federal court. All of which seem logical and incredibly lawyerly.

But, it is very unsatisfying. The U.S. is under no obligation to explain the difference between these duty rates to me or to anyone else. But, in the real world, that would be an appropriate step. The Court made general reference to tariff rates being the result of trade negotiations and concessions and to possibly depending on country of origin, the nature of the product, and the state of the domestic industry. I am not sure I agree. Most trade negotiations set maximum rates and duty reduction schedules, rather than impose specific rates for specific products. And, with the exception of trade preferences and the very few countries not entitled to Normal Trade Relations status, the country of origin does not affect rates of duty. It is possible that the domestic industry making men's gloves, shoes, and apparel is in need of more protection than the women's and children's industries, but the government did not argue that.

It strikes me that while the Court of International Trade might be right in this case, Congress should recognize that legal distinctions based on gender are always going to be suspect. Absent some affirmative showing of the need for these distinctions, as a matter of policy, it seems like it is time to equalize these rates.

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