California Apparel News

In a major legal and financial victory for U.S.-made jeans, law firm Sandler, Travis & Rosenberg has won a ruling in the United Kingdom that exempts Los Angeles–based Hudson Clothing from paying a steep 38 percent tariff on its women’s premium-denim jeans made in the United States.

“This is a big win,” said Elise Shibles, the attorney in STR’s San Francisco office who won the ruling.

Calls to Hudson Clothing seeking a response to the legal victory were not returned by press time.

The Dec. 2 ruling could apply to other U.S. blue-jeans companies and be honored by the other 27 European Union countries where the tariff on U.S.-made women’s blue jeans shot up from 12 percent to 38 percent on May 1. “My understanding is that the EU has to recognize each other’s binding rulings,” Shibles said.

The increased tariff, which can be renewed after one year, sent shock waves through the Los Angeles apparel industry, which manufactures about 75 percent of all U.S.-made premium-denim pants.

High-end blue jeans that sell for $180 to $399 have been a bright spot in the U.S. apparel export market. Many of those jeans end up in top-notch department stores such as Selfridges and Harrods in London.

In the legal argument submitted by Shibles on Oct. 4, she maintained that the jeans should be classified under the tariff provision as cotton women’s trousers because they are made of a “fugitive” dye and therefore don’t meet the definition of denim. “Fugitive” dyes are not colorfast and fade.

“If you made a jean with a synthetic dye or another color like black and it is colorfast, this ruling would not apply,” she said. “Hudson jeans are definitely made of denim as the term is used in the apparel industry, but they don’t fall within the legal definition of denim within the Harmonized Tariff Schedule.”

The legal strategy got rolling this summer when attorneys at Sandler, Travis & Rosenberg met with five Los Angeles blue-jeans makers to discuss a way to avoid the steep EU tariff.

Hudson Clothing stepped forward to have its name used for the legal proceedings and produce clothing samples. Shibles said the other companies include Paige Denim, Koral Los Angeles and True Religion.

“I think this is really good for us, obviously, but it takes a little bit of digging to determine whether or not the actual fabrics you are using fall under the guidelines they issued,” said Deborah Greaves, True Religion’s in-house legal counsel. “It has to deal with the manner the yarns are dyed and not readily apparent. But overall it is a lot better outcome than it was.”

Sandler, Travis & Rosenberg decided to file the legal argument with the U.K. customs and tax department because it is known for its quick response to cases, its historic legal system and the fact that English is its official language.

“We felt working with the U.K. is similar to working with the U.S. legal system, where they have a shared language, a good process, good time line and communications,” Shibles said. “They were communicative throughout the process by email. It didn’t go into a black hole.”

Shibles said Hudson Clothing can now ask for refunds on the blue-jeans that were subject to a 38 percent tariff. Women’s cotton trousers only pay a 12 percent tariff.

Tom Travis, a principal in the law firm, said his company is working with Hudson and other West Coast blue-jeans companies to seek refunds and obtain rulings on other items that should have been exempt from the tax.

The higher denim tariff was in response to the EU’s World Trade Organization dispute with the United States over the Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment.

The U.S. Congress approved legislation in 2006 ending the Byrd Amendment, which imposed antidumping duties on imported goods being sold in the United States for less than it cost to make them in their own country. Companies complaining that their business had been hurt by these undervalued imports could receive money from the antidumping duties collected.

Even though antidumping duties are no longer in effect, there is a pool of funds still out there being disbursed from the antidumping duties collected before the Byrd Amendment’s appeal. Last year, $120 million was distributed to U.S. companies. The EU is retaliating for this multi-million-dollar disbursement.

Definition of denim under the Harmonized Tariff Schedule

Denim means fabrics of yarns of different colors, of three-thread or four-thread twill, including broken twill, warp faced, the warp yarns of which are of one and the same color and the weft yarns of which are unbleached, bleached, dyed gray or colored a lighter shade of the color of the warp yarns.