JACOB GOLDSTEIN, HOST:
Robert Smith, what are you wearing?
ROBERT SMITH: I am wearing red pants, a red overcoat, a black belt - I'm dressed as Santa.
GOLDSTEIN: What am I wearing?
SMITH: You are also wearing a Santa suit (laughter), something I never thought I'd see, Mr. Goldstein
GOLDSTEIN: Me neither, but we are surrounded by - well, I don't know - a thousand people dressed as Santa.
UNIDENTIFIED MAN #1: I'm trying to get my belt to work.
GOLDSTEIN: You're having belt trouble.
UNIDENTIFIED MAN #1: Yes.
SMITH: Do you need our help with this, sir?
UNIDENTIFIED MAN #1: No, no, I'm OK. This is, like, a $14 Duane Reade Santa costume.
UNIDENTIFIED WOMAN #1: This is red velvet pantsuit
UNIDENTIFIED MAN #2: It's got a hood over it, long sleeves, some embroidering here.
SMITH: Yeah, the embroidery is beautiful, gold embroidery. And, look, this looks like a real belt that's actually holding in some girth.
UNIDENTIFIED MAN #2: Oh, yeah.
SMITH: This is SantaCon New York City 2015. It's an annual tradition. You dress up as Santa. You get drunk. You ho, ho, ho. You march in the city, dance a little.
GOLDSTEIN: Yeah, I'm not here to do that.
SMITH: (Laughter) No, you are here, I'm sure, for a nerdier economic reason.
GOLDSTEIN: I'm here for what I think is actually a more exciting reason. There is this international dispute going on right now over this basic question. What is a Santa suit?
SMITH: What is a Santa suit (laughter)?
(SOUNDBITE OF SUNNYSIDE SOCIAL CLUB SONG)
GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.
SMITH: And I'm Santa. Oh, my God, your face. I'm so sorry. And I'm Robert Smith. I will never do that again. And I'm Robert Smith.
GOLDSTEIN: Today's show is about a lawsuit over a Santa suit. It's part of this whole universe of hidden fights that shape almost everything we buy.
UNIDENTIFIED WOMAN #2: This podcast and the following message are made possible by Vonage. In 2001, Vonage revolutionized home phone service, making it better. After such a feat, who would have blamed Vonage if they said, enjoy, better world. We'll be carving up the ski slopes. But today, Vonage is not on the slopes shredding the way only Vonage can shred, but is back to work transforming communications for your business with award-winning cloud-based solutions. See how your business can get the better it deserves. Call 1-800-5VONAGE or go to vonage.com. Vonage, the business of better.
SMITH: The Santas are going into this bar right here, and I'm going to join them.
GOLDSTEIN: I'm going to go back to the office and do the story. Have fun, man.
GOLDSTEIN: Ho, ho, ho seems a little on the nose.
VANEK SMITH: (Laughter).
GOLDSTEIN: What do you think? Is the suit a good fit? It's a good look for me?
SMITH: It's - I mean (laughter).
GOLDSTEIN: Stacey, Robert disappeared into SantaCon, has not been seen from since.
GOLDSTEIN: You have graciously agreed to co-host this show with me. What do you think?
SMITH: You look very sharp.
GOLDSTEIN: Thank you. So let me tell you about the suit.
SMITH: (Laughter) OK, yes. Tell me about the suit.
GOLDSTEIN: I got at a place called Rubie's. It's a costume shop out on Long Island.
So you have some Santa costumes here?
MARC BEIGE: Yeah, that's where we're going.
GOLDSTEIN: This is Marc Beige. He runs Rubie's.
BEIGE: Well, you have the "Star Wars." It gets hard for me not to stop at the "Star Wars."
SMITH: Nice, Jacob.
GOLDSTEIN: Yeah, and these were, like, really spectacular "Star Wars" costumes. Like, there's this big old Darth Vader suit that looked like it was actually what the Darth Vader wore.
Anyway, right around the corner from Darth Vader...
Where are we standing now? What are we looking at?
BEIGE: Oh, you're looking at Santa Claus costumes.
GOLDSTEIN: A lot of them.
BEIGE: A lot of them, different qualities, different price levels.
GOLDSTEIN: This fight over Santa suits plays out on this wall right in front of us - on this wall of Santa suits right in front of us. And it's a fight over tariffs. Most of the suits are made overseas. Marc imports them, and of course, when he imports them, he has to bring them through customs. And depending on what he's importing, sometimes he has to pay a tariff. He has to pay a tax.
SMITH: And whether he has to pay that tariff and how much he has to pay is laid out in the Harmonized Tariff Schedule of the United States.
GOLDSTEIN: Harmonized Tariff Schedule.
SMITH: It is a 99 chapters long, and it lists tens of thousands of specific items. But it doesn't list everything. There is no line item that says costumes or Santa suits, so there has been this long-running fight. Where do costumes belong in the tariff code?
GOLDSTEIN: Marc Beige has an answer to that question. He says there is a section of the code, Section 9505 to be precise, that is perfect for Santa suits. It's called festive articles. I printed out the page. Here, you can just read some of the stuff in there.
SMITH: OK - Christmas ornaments of glass, of wood; nativity scenes and figures thereof; artificial Christmas trees.
GOLDSTEIN: It's not just Christmas stuff. This section also includes stuff like party favors and confetti and streamers. And all this stuff, festive articles, come into the country duty-free, no tax. Marc imports costumes, so, of course, duty-free is good for him. And according to the government, some Santa suits, like the cheap ones in front of us in the store, there is no question. They are festive articles.
BEIGE: It's made out of a flannel type of fabric, some back closure with Velcro.
GOLDSTEIN: This one is a festive article. But then Marc shows me a different suit right on the same display, a nicer suit.
BEIGE: Well it has, obviously, the pants.
GOLDSTEIN: Tell me what these pants look like. Feels nice - this feels nice.
BEIGE: Yeah, they're made out of a plush material. You have a jacket which has a zipper, has white fur cuffs, white fur collar.
GOLDSTEIN: It's got this nice lining.
SMITH: And customs looks at this nicer Santa suit and says to Marc - this is not a festive article. You made this so nice this is clothes. And clothes go under a different part of the tariff code. To import this suit, Marc has to pay a 32 percent tax on the jacket and a 29.2 percent tax on the pants.
GOLDSTEIN: Yeah, there's a pair of gloves, you know, white Santa gloves. Those come in at 10 percent under the tariff code.
And Marc thinks this whole thing is ridiculous. You know, he says it's a Santa suit. Clearly, it's a festive article.
BEIGE: This is the epitome of a festive article. I mean, when else, other than Christmas, are you going to wear this?
GOLDSTEIN: I mean, it's nice. I could put on this red fur jacket. It's a little bit chilly today. This is, like, the perfect weight for, you know, 50 degree weather.
BEIGE: Right, but what is the last time you went around dresses as a Santa Claus?
SMITH: Calling this Santa suit clothes, Marc says, makes it a lot more expensive for him and for customers.
GOLDSTEIN: He passes the cost on to us.
SMITH: Yeah, of course. So if you were going to pay $80 for a Santa suit, for instance, $10 or $15 of that $80 would be taxed.
GOLDSTEIN: And there is a lawsuit over this issue, a lawsuit over this question of what is a Santa suit.
The person bringing the lawsuit is him. It's Marc Beige. The suit is Rubie's Costume Company versus the United States. It's basically Marc saying to the government - come on, a Santa suit is a festive article. But when I ask Marc about the lawsuit, he doesn't really want to get into the details. He actually points to this guy in a suit and tie who's been following us around the store, his lawyer.
BEIGE: That's John Bessich. He's been our customs specialist, our attorney for many, many years.
GOLDSTEIN: So, all right - how did we get to a world where a lawyer needs to be present to have a conversation about a Santa suit? And I don't mean this rhetorically. I actually called up an expert. I called up Douglas Irwin an economic historian at Dartmouth and asked - how did we get here?
SMITH: And he says the story starts with the beginning of the U.S. government.
DOUGLAS IRWIN: Actually, the second piece of legislation passed by Congress in 1789 was tariff legislation.
GOLDSTEIN: Second law Congress ever passed?
IRWIN: Ever, yes, was a tariff.
GOLDSTEIN: On what?
IRWIN: On everything.
GOLDSTEIN: He was in his office when I called. And far as I could tell over the phone, seemed like he had every copy of the tariff code ever written kind of at hand. And he said back then, back in 1789, the tariff code was simple. And I imagine that's because there just weren't that many different things in the world, you know. Like, you could list everything. It's still not that much stuff. He read to me from that first tariff law. He said it's just three pages long.
IRWIN: Distilled spirits, molasses, malt, cast iron, all leather tanned or tawed, all clothing ready-made, seven and a half percent.
GOLDSTEIN: Oh, there it is.
IRWIN: There it is.
SMITH: Irwin says there's a simple reason that this was the second law Congress ever passed. The government needed the money. There was no income tax back them.
GOLDSTEIN: But there were ships full of stuff coming into Boston and New York and Charleston. And so the government looked at those ships and said, all right - you want to unload them here? Give us some money.
SMITH: That first tariff didn't mention festive articles. There wasn't much of a festive article industry back then.
GOLDSTEIN: So Douglas Irwin started going back through old tariff codes, looking for when festive articles first appeared. Eventually, he got to 1922.
IRWIN: Oh, I think festooning is festive articles.
IRWIN: Here's what it says - doll heads, toy marbles, toy games, toy containers, toy favors, toy souvenirs, garlands, festooning and Christmas tree decorations.
GOLDSTEIN: There it is. That's what becomes festive articles. So the tariff code is getting bigger and bigger and more and more complex, goes from that original three pages to, if I've got it right, I think now it's 3,681 pages. But in all those pages, there is no line for costumes. So now you have these two categories that costumes might go in. If they're clothes, then you have to pay a tariff. If they're festive articles, no tariff. And as a result of this, you have this endless fight that has been going on for decades.
SMITH: And who was on the other side of this fight? Who in the world was arguing that Santa suits and costumes were clothes?
GOLDSTEIN: The answer is pretty fun, pretty delightful. Back in the '90s, on the other side was Marc Beige, was Rubie's Costume Company. He has completely switched sides.
And you were on the other side then, right?
SMITH: (Laughter) Well, you know, it's good to be flexible in life.
GOLDSTEIN: Yeah, he's owning it, right? He's, like - he didn't seem ashamed of it at all. He's clearly not, like, a philosopher of the tariff code. He's not arguing over the metaphysics of Santa suits. He's a businessman. And back in the '90s, when he was on the opposite side, he was in a pretty different business. At that time, he was not importing costumes. He was making them here in the United States.
BEIGE: We were a domestic - a 100 percent domestic manufacturer.
GOLDSTEIN: And, of course, if you're a domestic manufacturer - if you're making costumes in this country - you want importers to have to pay a tariff, makes their costumes more expensive. So that is why Marc Beige was on the other side.
SMITH: And the government has also flip-flopped on this issue a lot. In the last few years, a lot of the costumes that used to be categories as festive articles, the government has changed its mind about them. It said, no, no no - actually, those are clothes.
GOLDSTEIN: I also asked customs about this. I said, you know - why are you making this change? They didn't comment. But Marc's lawyer, the guy who was with us, he used to work for customs. And he said, you know, customs is mostly just a bunch of people trying their best to put things into categories to follow the rules. The categories aren't always clear. The people working at customs change, and new people come in and they say, you know, that Santa suit that we used to call a festive article, I think it's actually clothes.
SMITH: And here's why the story is about more than just Santa suits. Santa suits are one little fight in one little corner of the tariff code, and the tariff code is giant. It's thousands of pages long. There are tons of complicated rules. And where there are complicated rules and money at stake, there are people for hire who will help you figure out how to play the game.
MICHAEL CONE: It's called tariff engineering.
GOLDSTEIN: Tariff engineering?
GOLDSTEIN: That's a real thing?
CONE: Oh, it's a huge thing.
GOLDSTEIN: You are a tariff engineer?
CONE: Sure, absolutely.
GOLDSTEIN: This is Michael Cone, tariff engineer and trade lawyer. And he says tariff engineering is not just suing the government, arguing that something should be in one category or another. It's figuring out how companies can build things differently, how they can actually tweak their products so that they get a better deal in the tariff code.
SMITH: There's one really famous example where a shoe company incorporated some kind of fabric into the sole of its shoe, just to move the shoe from one tariff category to another.
GOLDSTEIN: There's a similar kind of trick with costumes and that is if you use a Velcro closure instead of a zipper or a button, it's less likely to be counted as clothing, more likely to be a festive article, duty-free.
In fact, Cone told me festive articles have been a big deal in his world. It's not just costumes. I mean, there have been cases for years over, you know, if you have a mug or a placemat or a tablecloth and you put a jack-o'-lantern or a Santa Claus on it - does it count as a mug or a placemat or a tablecloth? Or is it a festive article?
SMITH: And there are other things that you don't even see. One client came to Michael Cone and wanted to import this big industrial machine. And Cone figured out if you split up the machine into two separate parts...
GOLDSTEIN: Basically, take it apart, right?
GOLDSTEIN: There's, like, hundreds of parts and split it up into two separate shipments.
SMITH: Right, on two separate ships. Cone figured out that the tariff would be a lot lower.
CONE: There was a lot cheaper. I more than paid for myself.
SMITH: This is totally legal, and it is a totally logical response to a tariff code that has tens of thousands of line items and different tariffs for each one.
GOLDSTEIN: Yeah. But obviously, it doesn't feel good, right? It's logical, but if you step back, you know, and look at the work Cone is doing here, it's not doing anything for our economy, right? I mean, we want a company spending time and money figuring out - what is the best machine we can buy? Or would this costume actually be better with a zipper or with Velcro? Paying lawyers just to figure how to minimize your tariff bill, it doesn't make our products better. And I - you know, I asked Cone about this.
Would we be better off if your job went away?
CONE: The very painful answer is yes.
GOLDSTEIN: For real? You really think that?
SMITH: Most economists agree that the benefits of tariffs and trade barriers are greatly outweighed by the cost of them. And most tariffs have either gone away completely or gone way down. Back in the 1960s, for example, the average tariff on the stuff we imported was around 7 percent. Today, it's one and half percent. But the tariff code is still a big, complicated book of rules.
GOLDSTEIN: And the case over the Santa suit, Rubies Costume Company versus the United States, is likely to go to trial next year. You can picture in your mind a courtroom. And there's John Bessich, Rubie's customs lawyer, pointing at a red plush Santa suit and telling the judge - festive article. And then another lawyer, a government lawyer, pointing at the same suit and saying it's wearing apparel. It's clothes. The lawsuit is over a particular suit. It's over the premier plush 9-piece Santa suit, which, of course, I tried to buy when I went out to meet Marc at Rubie's.
SMITH: Of course.
GOLDSTEIN: Oh, it's this. It's this. I think this is the same. Look at the name.
BEIGE: No, it's the 6-piece.
GOLDSTEIN: Oh, it's 6-piece. You're right.
They didn't have the 9-piece in stock, so I got the 6-piece. It's basically the same thing. It doesn't have the beard or the wig or the plush red Santa toy bag. But, you know, the jacket, the hat, the pants. Come on, it's Santa.
(SOUNDBITE OF SUNNYSIDE SOCIAL CLUB SONG)
GOLDSTEIN: All right, Stacey. So the suit is over the Rubie's premier plush 9-piece Santa suit.
GOLDSTEIN: Pop quiz - what are the nine pieces?
SMITH: OK - pants, coat, a hat, beard, plush bag, belt, boots.
GOLDSTEIN: Yeah, boot covers, good.
SMITH: Boot covers. I mean, like, accessory elf?
GOLDSTEIN: Wig and gloves.
SMITH: The wig's separate from the - oh.
GOLDSTEIN: Special thanks today to Ron Sorini of Sorini, Samet & Associates and Augustine Tantillo of the National Council of Textile Organizations. They both spoke to me for the show but didn't make it in. Also, that band that was playing at SantaCon - they were playing on the sidewalk. They were great. They are the Sunnyside Social Club.
SMITH: We always love to hear what you think of the show. Email us - email@example.com - or tweet us - @planetmoney.
GOLDSTEIN: We are also looking for our next intern. You do have to listen to a lot of our interviews, but you also get to listen to a lot of our interviews. And you get to pitch stories, help shape the show and you get paid a little bit. You can find out how to apply on our blog at npr.org/money. Our show today was produced by Jess Jiang and Nick Fountain.
SMITH: And if you're looking for another show, check out the TED Radio Hour with Guy Raz. Their latest episode looks at the hidden template that many of our popular myths and stories follow, for instance, movies like "Star Wars." Find the TED Radio Hour at npr.org/podcasts and on the NPR One app.
GOLDSTEIN: I'm Jacob Goldstein.
SMITH: And I'm Stacey Vanek Smith. Ho, ho, ho. Thanks for listening.
GOLDSTEIN: That's twice in one show that word.
(SOUNDBITE OF SUNNYSIDE SOCIAL CLUB SONG)
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