Justices Side with Agency in Haggar Case

WASHINGTON – The Supreme Court yesterday took the steam out of efforts by Dallas-based Haggar Corp. to produce wrinkle-free pants tariff-free in Mexico.The high court, in a unanimous decision, said the Customs Service has wide latitude to determine whether U.S. firms violate import regulations.


Under customs law, an importer is entitled to tariff exemption for products assembled abroad from U.S.-made parts, but only if significant improvements are not made in assembly.

“The whole point of regulations such as these is to ensure that the statute is applied in a consistent and proper manner,” Justice Anthony M. Kennedy wrote for the court.

At issue was whether lower courts interfered with the Customs Service’s role in regulating importers when the courts ruled that the agency should not have charged Haggar a duty for pants produced in its facilities in Mexico.

The customs dispute, which dates back 10 years, began when Haggar objected to being charged tariffs on pants it assembled in Mexico from materials and parts made in the United States.

Under customs law, an importer is entitled to tariff exemption for products assembled abroad from U.S.-made parts, but only if significant improvements are not made in assembly. Haggar applies a wrinkle-free treatment to the pants in Mexico that the Customs Service said makes a tariff applicable. The company argued that the wrinkle-free treatment was a minor improvement and that a tariff was not justified.

Legal experts said the ruling could limit the number of court challenges that regulators face from other business enterprises, such as the automotive and electronics industries, which also operate plants in Mexico and other countries.

Monica Neufang, a Haggar spokeswoman in Dallas, said the firm is evaluating the opinion and would not comment.Haggar makes men’s casual and dress apparel and women’s sportswear. The company opened its first factory in Central America – in the Dominican Republic – in 1981. It now operates two plants there and a third in Len, Mexico. It also has operations in Europe and in Asia.Industry analysts say that nearly 90 percent of Haggar’s production is overseas.

“Customs takes a very hard line on imports from Mexico under these types of circumstances,” said Stanley Marcuss, a partner in the Washington law firm Bryan Cave. “Virtually any change in the product that takes place in Mexico takes it out from under the duty-free category.

“Haggar paid the duty in 1988 and 1989, but then sued the Customs Service in the U.S. Court of International Trade, which ordered the government to repay the company. In October 1997, a federal appeals court upheld that ruling, and the Customs Service, through the Justice Department, appealed to the Supreme Court.

The Justice Department argued in its Supreme Court appeal that the lower courts should have deferred the decisions to Customs so long as its interpretation of the rule was reasonable. Such a procedure is called, “due deference,” and is intended to ensure a consistent application of federal rules governing industry.Haggar, in legal filings, told the court that the Customs Service was not entitled to the deference that courts afford other regulatory agencies because Congress had established rules governing the appeal of tariff violations.

But Kennedy said, “The statutes authorizing customs classification regulations are consistent with the usual rule that regulations of an administering agency warrant judicial deference.

“Marcuss criticized the court for not looking directly at Haggar’s argument for avoiding the tariff and said the decision could ultimately limit the ability of manufacturers to appeal administration rulings from agencies.”In this case you see an example of an increasing tendency on the part of the court to defer to interpretations of statutes by administrative agencies,” he said. “What it basically says is that the courts will not interfere. That’s just troubling.”

Michael D. Towle, (202) 383-6104 mtowle@krwashington.com

Copyright 1999 Star-Telegram, Inc.