Spiderman, a spider or a man?

Is “Spiderman” a spider or a man? I think the Spiderman fans – both the kids and the adults – must have never thought of a question like that. In fact, for them it should be a weird question as long as Spiderman has supernatural powers and abilities to do “good” things. But a US Court once had to deal with this question and to give a verdict with a clear legal answer.

Professor X and the rest of his team – the X-men, as well as other heroes such as Spiderman and Fantastic Four were kept under scrutiny at the US Court of International Trade in New York. They all were no more than little plastic toys, but the court had the task of deciding whether they represent humans or not. The task must have been difficult so that it has taken six years to conclude the case, Toy Biz Inc. vs. United States.

The plaintiff was the Toy Biz Company operating in the business of importing and supplying toys in the US market. The company had imported action figures such as X-Men, Spiderman, Fantastic Four, and others alike from China in the 1990s.

Not the humans

According to the Harmonized Tariff Schedule of the US Customs at the time, such toys were divided into two categories, which were subject to two different tariff rates. One category was the toys representing human beings (such as dolls) and parts and accessories thereof, which were dutiable at 12 per cent when they enter through the US Customs. The other category was the toys representing animals and non-human creatures (such as robots and monsters), which were dutiable at 6.8 per cent.

The US Customs had classified the imported merchandise of the Toys Biz – the X-men, Spiderman, and Fantastic Four – under the first category as “representing human beings” and, charged 12 per cent tariff rate. The Toy Biz went to the courts and, contested the US government arguing that their “toys do not represent the human beings so that the duties the company had to pay was unjustifiable”. The court carried out the hearing, examined the X-men, Spiderman, Fantastic Four and other action figures and, concluded the case on January 3, 2003. The judge declared the verdict as “they do not represent humans” so that they should have been subject to the lower tariffs.

Toy Biz won the case. But I am not sure how well it went with fans of these heroic action figures, who used to live with and to play with these characters with their own imaginations. The issue whether these action figures were humans or not must have never been an issue for them, until and unless it became an issue in a court.

Apparently, the issue must have been a disputable case purely from a legal point of view. Some may have looked at it, as a nonsense case. Nobody had told the court that these action figures represent humans in order to initiate a case as such. However, the court procedures and analysis also show that the examination must have gone beyond the objective characters of the toys. In order to decide whether they represent humans or not, the subjective features of the mythical action figures should have been examined too.

Creating non-productive work and jobs

Our focus is, however, none of the above, but “economics” of the case. Economics is all about creating value from productive activities and transactions. It is absolutely true that in the modern economic systems, “regulations” also play an important role in creating value from productive activities and transactions. Without regulations, there is no system, but how far should the regulations go making impact upon productive activities and transactions?

On the contrary, the man-made regulations can go too far in creating space for non-productive work and wasting scarce time and resources for such work. As the entire court case was a result of such an issue, from an economic point of view, the biggest outcome of the case has been the proof that how much non-productive work has been created and how much resources and time have been wasted just because of even a simple “man-made” regulation.

Perhaps, because of this proof, in fact, the distinction between “representing humans” and “representing non-humans” in the toy figures has been removed later on by the US government. This should have saved the time and resources that would have been wasted otherwise in non-productive economic activities. Even though such remedial measures were quickly implemented in developed countries such as the US, the presence of too many regulations and their complicated interference in economic activities and transactions has been a critical issue in many developing countries. They have been struggling not only to deal with such regulatory issues, but also to find a way out of the confusions and complications that the regulations have established in the systems.

The regulatory barriers have crept into many different areas of economic activities, but for today’s discussion we confine ourselves in “international trade” only.

Deregulation and trade facilitation

International trade is an essential component of economic development so that there is no country in the world which has become developed without promoting international trade – exports and imports. As trade involves both exports and imports, a country cannot engage in only one part excluding the other.

Trade involves moving a product at the point of production in one country to the point of consumption of that product in another country. For instance, consider the mobility of a tea packet that is produced at a factory in the Central Province of Sri Lanka to a consumer living in the city of Tehran in Iran or Moscow in Russia: The whole process of this transaction involves not only various tariffs and taxes at both ends, but also numerous procedures and controls by various parties including the government.

Trade facilitation means improving the efficiency of this transaction through simplification, modernisation and harmonisation of export and import processes. Deregulation is also part of that process which involves the removal of ‘unnecessary’ regulations that cause complexities and inefficiencies in export and import trade.

The existence of such regulatory environments has deterred the transaction processes and, hence the economic development of these countries for years and decades. They have also created work – in fact, non-productive work, as well as employment opportunities – in fact, the jobs that hardly contribute to value creation, and numerous institutions to carry out that work. They need to be given up in the deregulation process. And finally, there is also a fear of ‘ thinking out of the box’ and acting differently on the part of policy-making.

Thus deregulation and improving trade facilitation is, in spite of its importance for economic development, not an easy task for many developing countries. And they move slowly, as evident by their sluggish economic performance.

Road to corruption and bribery

Too many regulations create space for corruption and bribery as well. In our opening story, if it was in a different country, X-men and other action figures would have been moved from the higher tariff to the lower tariff band with a bribe!

Economic systems with complicated regulatory procedures are incentives for corruption and bribery. For the same reasons, attempts for deregulations and trade facilitations are not welcomed in the countries with established practices of corruption and bribery.

Many developing countries suffer from the consequences of corruption and bribery associated with international trade as well as in other economic activities. According to a different perspective, it is a way of improving economic efficiency by overcoming regulatory barriers and their complexities – let the systems to run without any reforms and allow corruption to make the businesses more efficient. However, the main issue is that these countries never perform better than those which bring about regulatory reforms and deal with corruption.

(The writer is a Professor of Economics at the University of Colombo and can be

reached at sirimal@econ.cmb.ac.lk).

Too many regulations create space for corruption and bribery as well. In our opening story, if it was in a different country, X-men and other action figures would have been moved from the higher tariff to the lower tariff band with a bribe!