For the past few years, the Court of International Trade has been involved in a battle of the sexes, of sorts. Importers of glove, footwear and apparel have claimed that the Harmonized Tariff Schedule of the United States (HTSUS) uses the gender and age of intended users of certain imported products to distinguish between tariff rates, and because those tariff rates are not equal, the HTSUS unconstitutionally discriminates on the basis of gender and/or age. The battle continues. . .
In Rack Room Shoes, Skiz Imports LLC, and Forever 21, Incorporated v. United States, (Rack Room Shoes), the importers filed a claim challenging the alleged discriminatory rates found in the HTSUS. An estimated 2,200 “pairs” of HTSUS provisions are based on gender and about 300 are based on age. The plaintiffs in Rack Room claimed that the disparities in the HTSUS based on gender and age are violative of the Equal Protection Clause, which guarantees that no one shall be “deprived of life, liberty, or property without due process of law”. But, before we can discuss what happened in Rack Room, it is helpful to look to the first test case, challenging these discriminatory tariff rates, Totes-Isotoner Corporation v. United States, 569 F. Supp. 2d 1315 (2008) (“Totes I”).
In Totes I, Totes-Isotoner, an importer of men’s and women’s gloves, claimed that the classification of men’s gloves under subheading 4203.2930, HTSUS, at a duty rate of 14% ad valorem and the classification of gloves “for other persons” under subheading 4203.2940, HTSUS, at a duty rate of 12.6% ad valorem, was discriminatory and violative of the Equal Protection Act. Unfortunately, in the Totes line of cases, Totes-Isotoner was not able to establish that the disparate classifications with alleged gender and/or age references had a discriminatory purpose and, further, could not establish that the tariff provisions’ reference to gender or age were “objectively invidious”. As a result, the Courts held that the challenged provisions of the HTSUS were not facially discriminatory and the fact that a disparate impact exists is insufficient grounds for a discrimination claim reasoning that women could buy mens’ gloves and men could buy womens’ gloves.
On appeal, the U.S. Court of Appeals for the Federal Circuit agreed that the HTSUS provisions at issue were not facially discriminatory, but disagreed with the CIT’s reasoning. The appellate court held that although women could purchase mens’ gloves and vice versa, the fact remains that women usually buy womens’ gloves and men usually buy mens’ gloves. However, Totes-Isotoner still failed to provide sufficient evidence of an intent to discriminate. That is, although in certain cases, e.g. jury selection, employment, etc., an allegation of disparate impact could be enough to support a case of unlawful discrimination, when dealing with customs duties something more must be alleged for two reasons. First, when enacting these revenue-raising provisions, “Congress … as a general matter is not concerned with the characteristics of the ultimate retail users of the goods, but rather such classifications are designed to promote particular trade policy objectives. . . .” Totes-Isotoner Corporation v. United States, 594 F.3d 1346, 1356 (Fed. Cir. 2010). Second, even if just enacted to raise revenue, discriminatory intent on the part of the government cannot be assumed since the government has “broad leeway in establishing classifications for purposes of taxation.” Id. at 1357. The Federal Circuit, therefore, affirmed the decision of the CIT.
The CIT allowed the remaining plaintiffs to amend their complaint to establish intentional discrimination and, thus, Rack Room Shoes became the new test case. In Rack Room Shoes, the plaintiffs claimed to have additional facts sufficient to establish a claim of governmental intent to discriminate and to demonstrate that the disparate impact had invidious discriminatory purposes, which violates the Equal Protection Act.
In Rack Room Shoes, the plaintiffs first alleged that Congress intended to discriminate “by directing and implementing classifications based on gender when it could have used other non-gender factors to distinguish or to separate merchandise for duty assessment purposes, or could have used non-tariff measures to effectuate governmental purposes other than raising revenue.” Rack Room Shoes, Inc. v. United States, No. 07-00404, slip op. 12-18 at 10 (CIT 2012). The court didn’t buy this argument and held that this did not add much to the original claim in Totes I.
Rack Room Shoes then looked to the 1960 U.S. Tariff Commission’s Tariff Classification Study, which stated that some of the gender and age distinctions in the tariff schedule were of “‘questionable’ economic justification.” Id. at 11. The court reasoned that this study criticized precursors to the current provisions being challenged and that this still did not evidence that the government intended to discriminate.
In the end, the CIT dismissed this case, again. So, what would it take to establish a claim that the gender/age tariff distinctions are discriminatory and in violation of the Equal Protection Act? The plaintiffs in Rack Room Shoes couldn’t connect the dots and show that the tariff provisions and Congress’s gender and age distinctions had an invidious intent to discriminate.
Historically, the tariff system exists to protect domestic markets. In establishing tariff rates, such as those established in the Totes cases and in Rack Room Shoes, Congress takes into consideration the commercial, practical and trade motivations which necessitate the distinctions we have been discussing. The court in Rack Room Shoes articulately stated:
[t]he rates of duty applicable to different product classifications are the result of multilateral international trade negotiations and reflect reciprocal trade concessions and particularized trade preferences. The reason behind different duty rates vary widely based on country of origin, the type of product, the circumstances under which the product is imported, and the state of the domestic manufacturing industry. . . . Further, differential rates may be the result of the trade concessions made by the United States in return for unrelated trade advantages.
Rack Room Shoes, at 13, citing Totes III, 594 F.3d at 1357.
Based upon the historical evidence, the Court found that Congress was not trying to create a discriminatory tariff classification. Rather, Congress was working to accomplish those exact goals set forth when the tariff system was was created.