When a U.S. importer brings in $10,000 worth of men's gloves, he pays $1,400 in tariff duties. When the same importer brings in $10,000 worth of women's gloves, he pays only $1,260. It's enough to make one ask: How can such gender-based discrimination be justified? And are importers who suffer it entitled to rebates?
These issues have been in the spotlight since Totes-Isotoner Corp., a U.S. importer of men's gloves, challenged the constitutionality of the tariff rates imposed on its imports. Totes has claimed that by establishing different rates for certain men's and women's gloves, the U.S. Tariff Schedule violates the company's right to equal protection under the law.
Although the U.S. Court of International Trade recently rejected Totes' argument on procedural grounds, the court left open the door for Totes to refile its case or to appeal to the 2nd U.S. Circuit Court of Appeals. The stakes are high. More than 100 importers and retailers, including Target, and Macy's, have filed similar cases in hope of winning rebates.
John M. Peterson, a partner at Neville Peterson, the law firm that represents Totes, said the potential value of such rebates could reach as much as $350 million a year. "The amounts are staggering, and could mount up," said Arthur Purcell, a partner at Sandler Travis & Rosenberg, which represents several footwear and apparel companies that have filed similar complaints.
The eventual economic impact could climb much higher if other importers decide to challenge tariffs that charge different rates for men's and women's products.
Such tariffs provide importers with a costly quandary. Importers can opt to pass on the extra cost to their customers without raising their prices, but that means squeezing their profit margins. However, if they try to pass through the extra cost by raising their prices, they might lose retail customers.
Most foreign countries don't have discriminatory tariff provisions. Canada has eliminated them, and the European Union has only a handful of minor provisions. Why do discriminatory rates exist in the U.S.? Not for any sound economic reason, Peterson said. During the Uruguay Round of multilateral negotiations, the U.S. cut tariffs on some apparel imports because it was a quick and easy way to make concessions that were evaluated on the basis of their dollar impact.
Opinions are divided about the chances of victory in the Totes case. "We think we will win because tariff rates are facially discriminatory," Peterson said. Tariffs are discriminatory on their face when they spell out their discriminatory intent in clear language. By contrast, setting higher tariffs for, say, imports of condoms than for birth control pills would discriminate against men without referring to gender.
If Totes-Isotoner can convince the Court of International Trade that U.S. tariff rates are facially discriminatory, the government would have the burden of proving that there is a compelling economic reason for that discrimination, such as the potential economic benefit of setting higher tariffs on "men's" gloves for U.S. producers who need protection.
The problem with that sort of argument, Peterson said, is that these kinds of men's gloves have not been manufactured in the U.S. for about 25 years, so there is no U.S. industry to protect.
Purcell said the burden of proof should be on the government, not on importers. The government is entitled to discriminate only if it can show they have "an exceedingly persuasive justification" to do so, he said.
Purcell said his firm is encouraging other importers to challenge tariffs that discriminate between men's and women's products, but that victory is not assured. "It is very difficult for something to be declared unconstitutional," he said.
Brenda Jacobs, a partner at Sidley Austin, said Totes' legal argument has been "very creative," but that it's too early to assess the company's ultimate chances of success. "I don't think anyone is counting on getting a payoff," she said. One key problem, said Jacobs: "How do you show that there was discrimination when these tariffs were the result of international negotiations?"