WTO Helping Santa Clear Customs?

'Tis the season for the Trade Post to be taking a little holiday hiatus. But before we leave you all to enjoy the holidays, we figured we'd offer you with a few trade-related cookies and carrots to nibble on.

The holiday season is a pivotal time of year for toymakers and retailers. Underneath the mistletoe, companies are trying to woo consumers with the right prices—a task often made tricky by tariffs on imported goods.

Traded goods have their very own naughty-or-nice list, one that the new World Trade Organization (WTO) agreement is trying to make easier to read. Each year, customs officials around the world decide how to classify the millions of toys crossing international borders. They do so according to the World Customs Organization’s (WCO) Harmonized Commodity Description and Coding System, better known as “HS,” which provides a six-digit numeric code on about 5,000 different commodity groups. These codes help reduce trade costs by creating a uniform classification on goods, and a legally recognized system for customs officials to draw upon. According to the WCO, more than 200 countries use the HS, covering roughly 98 percent of internationally traded goods.

A product's classification can make a big difference on whether or not it becomes this year's top stocking-stuffer. But is there more to this classic tale?

Take, for instance, the story of Toy Biz v. the United States. More than a decade ago, Toy Biz, Inc., a subsidiary of Marvel Comics, filed suit to have the action figures it was importing be labeled as non-human toys rather than dolls. Dolls were subject to a higher tariff (though this distinction has since been eliminated). After years of litigation, Toy Biz won and the imported cost of their X-Men, Fantastic Four, and other action heroes was drastically reduced.  

In a bizarre twist, the decision sparked outrage among fans. Many believed labeling the X-Men as non-human was an injustice. Not because of any tariff, but because the X-Men stood for equality-- their struggle for mutants to be recognized as deserving of human rights was a key plotline in the series.

What does this have to do with the holidays? Well, you might be surprised to find out how customs officials have classified some of the most recognizable holiday heroes and villains.

In the United States, the U.S. Customs and Border Protection (CPB) makes these decisions. Dating back to 1989, the CPB has made more than 3,600 classifications on Christmas-related goods. From hats to hosiery, from chip-and-dip sets to holographic giftwrap and decorative shrub covers— if a trader can convince the CPB its item is “a festive article,” that item is then duty-free when imported to the United States.

It’s no easy task. Take Santa Claus, for instance. When he is not donning his festive red attire, he is not considered Christmassy. In the case of a set of figurines, the CPB found that both the Kris Kringle and Ded Moroz figurines were "distinguishable only as an old man, or perhaps as a friar or cleric, and are not identifiable upon importation as Santa Claus." They were classified under HS code 39 as “Other articles of plastics” and given a 5.3 percent ad valorem duty rate.

If you think Kris Kringle has it tough, try being Frosty the Snowman. According to the CPB, a "generic snowman is not a recognized festive symbol of Christmas and is not eligible for duty-free treatment." If Frosty wants to be duty-free, he has to be able to sing his song—which is then classified as festive.

Classifications are equally as tricky on The Island of Misfit Toys. Rudolph the Red-Nosed Reindeer and other characters from the classic Rankin/Bass holiday movie were festive enough to be considered duty-free. But in one case involving a set of bobblehead figurines, some interesting classifications came to light.

For one thing, these bobbleheads had been mislabeled. The CPB made it clear: bobbleheads are toys, “defined as being for the amusement of adults (as well as children)… because of their amusing, whimsical appearance and the bobbling head action." Rudolph and Bumbles the Abominable Snowman were re-classified as “toys representing animals or non-human creatures.” Hermey the Elf, however, is a doll “representing only human beings… whether or not dressed,” which is a bit weird.   

Oddly, the Santa Claus bobblehead is considered neither toy nor doll, neither human nor non-human. Rather, it is classified under “Articles for Christmas festivities and parts and accessories thereof: Christmas ornaments: Other: Other.” But luckily, still duty-free.  

Ebenezer Scrooge has been classified as a doll representing a human being, but was not considered a Christmas or festive doll, and thus was slapped with a 12 percent ad valorem duty rate—which he probably did not appreciate.

A “Mrs. Santa Baking” doll was also considered human, but shockingly not considered Christmassy. She also received a 12 percent duty.

The Grinch, somehow, was considered Christmassy! Maybe that change of heart helped his case. Either way, he and Max the Dog are now considered animal or non-human toys, which still makes the Grinch a little different from Cindy-Lou Who and the others in Whoville (who are classified as dolls representing only human beings).

All of this may sound silly, but imagine being a trader and not knowing what the duty would be on your goods when they arrive at a port. This is a major concern. Research shows information availability has a significant impact on bilateral trade volumes and trade costs. 

This is why the new WTO Agreement on Trade Facilitation specifically addresses the issues of publicizing key customs information (Article 1), providing advance notice of changes to requirements (Article 2), and providing requested rulings in advance (Article 3). These advance rulings, in particular, clarify to importers and exporters how a country classifies a good, determines its origin, and levies its duty. All of which will help to lower the uncertainty of new transactions and, hopefully over time, will smooth out customs clearance process across the globe.  

So, as it turns out, Christmas may have come early for importers and exporters.