Governments have shown perhaps their greatest trade-policy creativity when deciding in what categories different imported goods belong. Their decisions are by no means academic. The stakes are high because an import that falls into one category can be allowed into the country dutyfree, whereas the same import defined as falling into a related category is subject to a high tariff or banned altogether.

You can bet that if definitions matter so much to trade policy, there will be intense lobbying over each product’s official definition.

Protectionists will insist that an imported product be defined as belonging to the category with the high import barrier, but importing firms will demand that it be put in the duty-free category.

When such strong pressures are brought on government, don’t always expect logic in the official definitions.

Some of the resulting rules are bizarre. For example, here are two included in regulations passed by the European Union (EU) in 1994:

• Carrots are a fruit. This definition allows Portugal to sell its carrot jam throughout Western Europe without high duties.

• The land snail, famously served in French restaurants, is a fish. Therefore, European snail farmers can collect fish farm subsidies.

The U.S. government has similarly bent the rules. In the early 1990s Carla Hills, then the U.S.

trade representative, was compelled to call the same car both American and “not American.”

She told the Japanese government that car exports from U.S. factories owned by Japanese firms to Japan were Japanese, not American.

They did not count when the U.S. government examined the size of American car exports to Japan. At the same time, she told European governments that the cars exported to Europe from these same Japanese-owned factories in the United States were American, so they were not subject to European quotas on Japanese car imports.

With even greater ingenuity private firms have changed the look and the names of their products to try to get around each set of official definitions. For instance, a VER on down-filled ski parkas led to the innovation of two new products that were not subject to VERs. One product was a down-filled ski vest that had one side of a zipper on each armhole. The other product was a matched pair of sleeves, with one side of a zipper at the top of each sleeve. Once the two products were imported “separately,” the distributor knew what to do.

As another example, Subaru once imported pickup trucks with two flimsy “rear seats” bolted to the truck bed to avoid the U.S. tariff of 25 percent on “regular” pickup trucks. To avoid the same 25 percent U.S. duty, Ford imports vans from Turkey as “passenger wagons” because the vans have both rear side windows and rear seats.

Once past customs Ford removes and trashes the rear windows and seats, replaces the windows with metal panels, and sells them as small commercial delivery vans.

In some cases it is a U.S. judge that makes the call. In 2001, a judge ruled that cheap children’s Halloween costumes (think Scream) were

“fancy dress apparel,” not the “flimsy festive articles” that the U.S. Customs Service had long considered them. The suit was a victory for the U.S. producer, Rubie’s Costume Company, that brought it. Rather than entering duty-free, imported costumes (that competed with Rubie’s)

would be subject to a tariff up to 32 percent and be covered by the VERs on clothing. Trick or treat?

In 2003, another U.S. judge studied opposing legal briefs and more than 60 action figures, both heroes and villains. Among her conclusions were that the X-Men were not humans, nor were many of the others. She was not just playing around: Toys that depict humans are dolls, subject to 12 percent import tariffs, but toys that depict nonhumans are just toys, subject to a 7 percent tariff.

Such games have been played with great frequency over the definitions of products. As long as definitions mean money gained or lost, products will be defined in funny ways.

DISCUSSION QUESTION During your foreign travel in South Asia, you acquired an expensive, elaborately woven textile, size 1 meter by 2 meters. At customs as you are returning home, the official asks if it is a rug or a decorative wall hanging. What do you reply?