Halloween costume makers in legal fight

NEW YORK -- It's a scary time for Halloween costume importers and retailers.

For years, imported costumes made from cloth -- including the most popular characters sought by children, such as Spiderman or Cinderella -- moved freely through U.S. borders without being subject to tariffs and import quotas. Now, these goods, known as nondurable costumes, are at the center of a legal battle that's sending shivers through the Halloween costume industry.

The fight is unlikely to have much effect on consumers this Halloween -- shoppers won't see any noticeable price increases at stores like Wal-Mart Stores Inc. and Walgreen Co. But next year, prices might rise as much as 50 percent if a federal appeals court upholds a lower court ruling that these goods should be treated like regular apparel, subjecting them to imports and duties of up to 30 percent.

"We are watching this case carefully," said Tom Williams, spokesman at Wal-Mart, noting that he hasn't seen any measurable price increases this year.

The dispute grows out of a case brought by New York-based Rubie's Costume Co., which sews most of its costumes in the United States but found it was getting slapped with duties of anywhere from 10 percent to 16 percent on fabric it imported.

In what Rubie's calls an attempt to gain "an even playing field," the company persuaded a judge from the U.S. Court of International Trade -- a federal court that rules on customs and trade-related disputes -- in February to reclassify costumes made of nondurable cloth as "fancy dress" apparel, subjecting them to tighter rules.

For years, the U.S. Customs Service had defined nondurable Halloween costumes as "flimsy festive articles," allowing the products to enter the country duty- and quota-free.

In June, the Justice Department appealed the case, and now the decision lies with the U.S. Appeals Court in Washington, D.C., which is expected to rule on the case next year.

"We think it is unfair that someone who makes use of China labor can escape duty on everything," said Marc Beige, president of Rubie's.

But, Rubie's rivals contend the company is just trying to hurt importers.

"This whole concept is ridiculous," said Alan Geller, executive vice president of Fun World, a costume importer, who, along with Paper Magic Group Inc., filed a brief in support of the U.S. government's position.

"Rubie's lost a lot of market share, because it has been unresponsive in the market," he said. "It's not about cheap prices."

While the quotas have been temporarily waived, importers have been getting hit with duties since last March, forcing costume suppliers either to absorb costs or share some of that burden with retailers, resulting in lower profits.

The Customs Service will refund those duties to importers if the appeals court rules in the importers' favor.

With a decision not expected until next year, importers say they've delayed ordering costumes from overseas for next Halloween. They say they're afraid to make any financial commitments on goods that might end up being too costly to bring to the United States.

"This is giving me a lot of headaches," said Geller. He's had to raise wholesale prices on some items by $1 for this Halloween. Geller believes such price increases, combined with a weak economy, has resulted in a 10 percent to 12 percent dip in business this season.

"The big question is, how do we plan for next year?" Geller asked.

"There is a lot of confusion as to where the prices will be and where the product will be able to be made," said Scott Fraistat, president of Paper Magic, which absorbed the costs of the duties and whose profits are suffering as a result.

Importers estimate that one-third of the Halloween costume business is from imports, primarily from China.

Attorney Mark Bravin, who's representing Paper Magic and Fun World, said that if the appeals court upholds the Court of International Trade ruling, he expects that duties and quota costs together could double the manufactured cost of his clients' costumes.

The big problem is the quota issue. Importers of such merchandise will have to buy what are known as quota visas from China and other foreign countries that are subject to textile import restraints. The visas, which allow importers to bring products to the United States, can be expensive and hard to get.

Paper Magic's Fraistat estimates that buying quota visas might add upwards of $1 per garment, which could translate to an increase of $3 to $5 at retail.

In the meantime, Geller said he is searching for alternatives to China, such as Thailand. But doing business there is no sure thing.

"We are going to have to start new relationships," Geller said. "This will be new, untested areas."