The Court of International Trade Holds Fantasy Toys Eligible for Duty-Free Status Under the Generalized System of Preferences

NORTH CAROLINA JOURNAL OF INTERNATIONAL LAW Volume 13 Number 2 Article 10 Spring 1988 How E.T. Got through Customs: The Court of International Trade Holds Fantasy Toys Eligible for Duty-Free Status under the Generalized System of Preferences Patti L. Holt Follow this and additional works at: https://scholarship.law.unc.edu/ncilj Part of the Commercial Law Commons, and the International Law Commons Recommended Citation Patti L. Holt, How E.T. Got through Customs: The Court of International Trade Holds Fantasy Toys Eligible for Duty-Free Status under the Generalized System of Preferences, 13 N.C. J. INT'L L. 387 (1988). Available at: https://scholarship.law.unc.edu/ncilj/vol13/iss2/10 This Note is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Journal of International Law by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact [email protected]. How E.T. Got Through Customs: The Court of International Trade Holds Fantasy Toys Eligible for Duty-Free Status Under the Generalized System of Preferences E.T., the extraterrestrial character in the Stephen Spielberg movie of the same name, I recently appeared in a new role as the star of an international trade case. The plot involved the economic development of third world countries and the growing importance of the United States as the world's biggest consumer of stuffed toys. In order to advance both of these interests, the Court of International Trade (CIT) overruled previous trade cases and redefined a tariff classification in order to allow stuffed figures of E.T. to be imported into this country duty-free. In Kamar InternationalInc. v. United States,2 an American toy man- ufacturer, Kamar, attempted to import stuffed figures of E.T. into the United States from Taiwan without paying a duty.3 Under the Generalized System of Preferences (GSP), selected items from developing countries are eligible to be imported duty-free.4 The U.S. Customs Service refused to classify the E.T. toy as such an item, and Kamar appealed the customs classification to the Court of Interna- tional Trade (CIT). I E.T. was a toddler-sized, wrinkled and wizened, pot-bellied alien who was acciden- tally left behind when his spaceship visited California. He was rescued and protected by a 10 year old boy with whom he formed a magical friendship. The film, E.T. (Universal Pictures 1982), has been called "the most popular movie in Hollywood history." Spielberg's Creativity, N.Y. Times, Dec. 25, 1982 at DI, col. 1. 2 Kamar International Inc. v. United States, 8 I.T.R.D. (BNA) 1442 (Ct. Int'l Trade Oct. 16, 1986). s Kamar was the only toy company licensed by Spielberg to manufacture stuffed Ex- tra-Terrestrials, although it originally turned down the chance to market E.T. because in two dimensional photographs he didn't look "too hot." Fortunately for the company, an executive saw E.T. on film and decided the alien was worth a risk. The brown vinyl E.T. character tripled Kamar Industries' sales within six months of the movie's premiere. E. T. and Friends Are Flying High, Bus. WK., Jan. 10, 1983, at 77. Due to the huge success of the stuffed toy, Kamar eventually opened 50 factories in Taiwan and stopped all other manu- facturing in order to keep up with the demand for Extra-Terrestrials. Makers of E. T. Deny Earthly Imposters, N.Y. Times, Oct. 25, 1982, at D5, col. 4. Kamar took great pains to pro- tect its license, and in October 1985 took out full page newspaper ads declaring that it did not intend to share its success: "So, if by chance you're toying with an idea similar to E.T. we urge you to remember those interesting gentlemen who wear black robes and decide other people's destinies .... Enough said?" Id. at D2, col. 1. 4 See infra notes 11-21 and accompanying text. N.C.J. INT'L L. & COM. REG. [VOL. 13 Upon first glance, this case appears to be very simple and direct. The CIT acknowledged that there was only one issue to be resolved, "whether stuffed toys depicting the imaginary character E.T. which do not represent any person or thing known to be living on earth or elsewhere are 'toy figures of an animate object' within the meaning '5 of item 737.30 TSUS [Tariff Schedules of the United States]." Kamar claimed E.T. was an animate being, so stuffed E.T. toys should be classified under item 737.30 (toy figures of animate ob- jects). 6 Items in this classification were eligible for GSP status. 7 But the U.S. Customs Service claimed that E.T. was not an animate being and placed the stuffed toys under item 737.95 (toys not specifically provided for),8 with a tariff rate of 13.6% ad valorem.9 Thus, the issue in this case was whether E.T. was entitled to duty-free customs treat- ment as a product from a beneficiary country under the GSP. In an amusing and imaginative opinion, the CIT ruled that E.T. is, in fact, an animate object, and toys created in his likeness are entitled to GSP status. 10 The United Nations Conference on Trade and Development for- mulated the groundwork for the Generalized System of Preferences in 1964 in an effort to increase the wealth of developing countries through trade rather than through foreign aid." 1 As spokesperson for developing countries at the conference, Argentinian economist Raul Prebisch suggested that developed countries grant temporary, 2 duty-free entry to products imported from developing nations. 1 This tariff preference would enhance those countries' ability to com- pete in the international market by lowering the product cost to consumers in developed countries.' 3 The United States was opposed to the GSP when first intro- 5 Kamar, 8 I.T.R.D. (BNA) at 1443. 6 Id. The rate of duty that would have applied to items in this category from noncommunist, non-GSP eligible countries was 11.2% ad valorem. Id. 7 Tariff Schedules of the United States Annotated (1982), sch. 7, pt. 5, subpt. E [hereinafter TSUS]. 8 Id. 9 An ad valorem tax is "a tax imposed on the value of property ... laid in the form of a percentage on the value of the property." BLACK'S LAW DICTIONARY 48 (5th ed. 1979). Items in the nonspecific category would normally be GSP-eligible and thus duty-free, but Taiwan and Korea had been taken off the list of beneficiary importing countries in this category. TSUS, supra note 7, General Headnote 3(c)(iii). Ste infra note 58 and accompanying text. 10 Kamar, 8 I.T.R.D. (BNA) at 1443. 1I Note, Renewal of the GSP: an Explanation of the Program and Changes Made by the 1984 Legislation, 18 VAND. J. TRANSNAT'L L. 625, 633 (1985). 12 Statement by Mr. Raul Prebisch, Secretary-General of the United Nation's Confer- ence on Trade and Development, 2 Trade & Dev. Pol. Statements 76, U.N. Doc. E/Conf. 46/141 (1964). 13 The GSP scheme is beneficial to developed countries as well as developing countries since a decrease in importation costs will lower the price of the product to consumers. Note, supra note I1,at 633; see supra note 32 and accompanying text. In addition, strength- ening the economies of developing nations by encouraging trade should provide a broader 1988] KAMAR INTERNATIONAL INC. V. UNITED STATES 389 duced, in part, because the General Agreement on Tariff and Trade (GATF)1 4 was based upon the concept of nondiscrimination among member countries. According to the Most Favored Nation clause (MFN), tariff rates were to be the same for imports from any GATT member nation. t5 The MFN clause was obviously in direct conflict with the philosophy of the GSP.' 6 GSP negotiations, which took place within the GATT in 1971, resolved the issue with the adoption of a ten year waiver of the MFN clause.' 7 The waiver permitted, but did not require, member nations to implement GSP programs. The GATT waiver, international developments during the 1970s, 18 and pressure from other developed countries resulted in the adoption of a GSP program by the United States in 1974.19 Under this program, GSP status is restricted by both the designation of beneficiary developing countries (BDCs) and by the restriction of eligible products from those countries. Designation of BDCs and de- termination of eligible articles is a power granted to the President under the 1974 Trade Act, 20 but he is required to make these deter- 2 1 minations based upon criteria established by Congress. market for U.S. exports. Id.; see also Hackney and Shafer, Protectionism and Developing Coun- tries: The Impact on Trade and Debt, 23 STAN. J. INT'L. L. 203, 206 (1987). 14 The GATT is a treaty among 120 nations that provides general rules of international trade among its members. Following World War l1 the treaty was drafted for the purpose of achieving multilateral, nondiscriminatory, reciprocal tariff reductions. There have been seven rounds of negotiations since the inception of the GATT in which mul- tilevel tariff rates have been reduced and international trade rules have been promulgated. For an overview of the GATT and how it works, see E. McGOVERN, INTERNATIONAL TRADE REGULATION 3-44 (1986); J. BARTON & B. FISHER, INTERNATIONAL TRADE AND INVESTMENT: REGULATING INTERNATIONAL BUSINESS 142-70 (1986). 15 General Agreement on Tariffs and Trade, Oct.

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