One of the issues being discussed as a factor in getting the economy going again is the relaxing of government regulations. For most people who are not active in business, this issue neither resonates nor seems important. However, government regulations are significant. The recent seizure of materials at the Gibson Guitar manufacturing plants by agents of the US Fish and Wildlife Service is a good example, albeit extreme, of how difficult it is for business to comply with governmental regulations.

The Gibson Guitar Factory Incident -- What Happened
On August 26, federal officials of the US Fish and Wildlife department raided the factories of Gibson Guitar in Memphis and in Nashville and seized nearly a million dollars worth of imported ebony and rosewood. The wood had been shipped to Gibson from India.

In addition, the government action forced Gibson to close closed the factories and send more than 560 workers home.

The government acted upon the premise that the wood shipped to Gibson was a violation of the Lacey Act, which governs the transport and importation of plants and wildlife.

The exact violation, as listed in the affidavit filed by John Rayfield of the US Fish and Wildlife Service requesting a search warrant, is that the wood shipped to Gibson was listed on importation document incorrectly and in contradictory ways.

However, upon reading the actual complaint listed by the government in the request for a search warrant, it becomes clear the situation is very complex.

To understand the confusion behind this situation, it is first necessary to understand the Lacey Act.

The Lacey Act
The original purpose of the Lacey Act passed in 1900 was to protect the exportation of American wildlife, specifically bird feathers, in order to prevent extinction of those birds.

The Lacey Act was amended in 2008 to cover plants and other fauna. The purpose of the Lacey Act now is to protect endangered species not only in the US but in other parts of the world.

This laudable intent of the Act, however, has made for extremely difficult situations for US businesses, however, as it becomes difficult not only to comply, but to understand how to comply.

The problem results from the detailed paperwork that has to be filed to comply with the Lacey Act.

Gibson's Paperwork Problems
Gibson's problem resulted from contradictions of information listed on the Lacey Act declaration and the information listed on the Indian Export declaration, the Customs entry declaration form, and the way-bill used by American Airlines to ship the wood in question.

Here are the details of the information listed on the forms, in as brief a manner as we can present it. The phrase "HS code" refers to the Harmonized Schedule which is an internationally agreed upon classification system for commodities.

-The Indian Export declaration, filed by the Indian seller, Atheena Exports, declared the wood as Indian Ebony Fingerboards and classified it as "finished parts of musical instruments." This form listed the product as HS Code 9209.92.00. Products falling into the HS Code 9209 category -are legal for exportation from India, by India law, and legal for importation into the US.
-The wood was accompanied by a "Certificate of Origin" issued in India which states that the shipment contains "Indian Ebony Fingerboards" and lists Nashville, TN as the final destination.
-The US Customs Form 3461 listed the products as "Veneer Sheets" under classification HS 4408.90.0195. Importation of HS 4408 is legal under the Lacey Act.
-The US Customs Form also listed Luthier Mercantile as both the importer of record and the consignee of record, but listed Nashville TN as the shipment's destination.
-The Lacey Act declaration form listed the wood as "Ebony fingerboard for guitars: Diospyros ebenum, harvested in India, with the final consignee listed as Gibson Guitars, Nashville TN.
-However, the Lacey Act declaration form also listed the wood as HS Code 4407.99.96, which is classified as "sawn wood." HS Code 4407 is a prohibited code for importation into the US, under the Lacey Act.
-The wood at Gibson Guitar was seized because of the conflicts listed in these forms in how the imported wood was classified.

The Details Of Classifications
What is the difference in the Harmonized Schedule for Codes 9209, 4407, and 4408?

HS Code 4407 is defined as: "Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm."

HS Code 4408 is defined as "Sheets for veneering (including those obtained by slicing laminated wood), for plywood or for other similar laminated wood and other wood, sawn lengthwise, sliced or peeled, whether or not planed, sanded, spliced or end-jointed, of a thickness not exceeding 6 mm."

HS Code 9209 is defined simply as "Parts ? and ? accessories ? of musical instruments; metronomes, tuning forks and pitch pipes of all kinds." The sub-designation of 9209.92 designates the wood as part of a guitar.

The difference between 4407 and 4408 is therefore whether the wood thickness is larger or smaller than 6mm.

The category 9209 contains no size specifications or other detailed refinement that can be measured.

The ebony fingerboards seized by the US government were measured at 10mm in thickness.

The Big Question
If the Customs importation form and the Lacey Act Declaration form has listed the wood is being in HS Code 9209.92.00, as the original seller of the wood has specified, would the importation of this wood have been allowed?

The US Fish and Wildlife Service claims that the category of 9209 was "falsely applied" by the Indian exporter. The basis for this claim revolves around the definition of the term "finished product," as defined in Indian law. We were unable to research any specific Indian law that might have been applied by the US agents that defines "finished" with respect to musical instrument parts.

If the imported fingerboards had been less than 6mm (0.24 inches), the wood clearly would have been legal to import, under the HS Code of 4407.

However, the wood at Gibson was measured at 10mm (0.39 inches), and therefore was in HS Code 4408, which is illegal under the Lacey Act.

The seizure of the wood at Gibson is, therefore, based entirely on the 4mm measure difference between HS Code 4407 and HS Code 4408.

The 4mm difference is equal to 1/6 of an inch.

This means that the wood at Gibson was seized, without due process of law, based upon a 1/6 of an inch difference in thickness, a distinction that only applies once the categorization of "musical instrument part" is rejected.

Caught In The Regulatory Quicksand
Gibson has not been formally charged with any crime, nor has any detailed explanation been given to the company about the exact nature of the violation.

Gibson also had ebony and rosewood wood seized in 2009, which was originally sourced from Madagascar. We have not researched in detail that facts of that seizure.

However, since the November 2009 seizure of wood from Gibson, the company has not been charged with a crime, nor has the wood been returned. Gibson's civil lawsuit to recover that wood is stalled in the court system.

It should be noted that neither Indian ebony nor Indian rosewood nor Madagascar ebony nor Madagascar rosewood is on the endangered species list maintained by CITES, the international body that maintains such a list.

Furthermore, Gibson has been certified by the Forest Stewardship Council as compliant with the Rainforest Alliance SmartWood program, which is an industry program to protect rare woods. In addition, nearly every US guitar manufacturer uses Indian ebony for fingerboards on their high end models, including C.F. Martin, Taylor, Fender, and many others.

While exportation of Indian wood in uncut logs or large slabs of timber is clearly illegal by US and Indian law, the real purpose of those laws is to given the Indian government the ability to control exportation and protect the jobs of Indian workers who cut and finish Indian wood. .

It is also clear that neither Gibson nor the importers ever tried to obscure the fact that the product was Indian ebony intended for fingerboards.

The real problem is that the paperwork for this shipment was both contradictory and incomplete. The US Fish and Wildlife department made a determination, on their own, that the fingerboards were not "finished" as defined by Indian law, and therefore not entitled to the HS Code 9209 classification.

The real problem for Gibson now is due process. How can they clear their name or be judged in a court of law?

No one seems able to answer that question. Gibson has fallen into a Kafka-esque scenario of unbalanced governmental power.

The Regulatory Fear
We admit to have chosen an extreme example of government regulatory hinderance to business growth and expansion.

However, this type of regulatory morass is common in many industries.

What the Gibson Guitar case illustrates is the following aspects behind a widespread fear of government regulatory actions, including:

-Difficulty in understanding regulations
-Presumption of guilt, not innocence
-Punishment implemented before any trial or hearing of any kind
-Lack of due process
-Excessive power granted to agents for enforcement
-This features are present, to varying degrees, with many regulated industries.

Fear of government regulation actually keeps some strong businesses from expanding. There are many laws and regulations which do not apply to businesses with less than 50 employees or 100 employees.

How many business with 49 employees fear expansion because of the applicability of new regulations, most of which involve new costs related to expanded employee rights?

How many businesses fear to expand into broader realms of business because of uncertainty about new regulatory rules?

If regulations were clear and without vague gray area, the fears might be lessened. But all too often, regulatory powers are granted to a federal or state agency by a vague and well-intended law, upon which vague and broad regulations are then based. To list numerous examples is behind the scope of this article.

The Cultural Bias Against Businesses
There is also a deeply rooted cultural prejudice against businesses by a wide segment of the population.

Much of the initial media reports on this story described the story as either Gibson importing endangered species wood or as importing illegally harvested wood.

Neither of these categorizations are accurate, but they are certainly sensationalized and put the US government in the light of the "good guys" policing the environment.

This type of cultural prejudice is amplified by the simplistic characterization of Republicans as "pro-business" and Democrats as "guards against business excesses."

Neither of these stereotypes are really accurate, but the media, and politicians themselves, continue to foster them, making them appear to voters as an "us or them" type situation.

This prejudice is certainly exacerbated and reinforced by the media's constant attention to the issue of some major corporations paying very little in federal income tax. The details of most of these stories is left out, of course, leaving individuals with only a dismal image of the "evil" corporation.

The Cry For Relaxed Regulations
The cry for lower regulations comes from businesses themselves, of course, and is hardly a populist movement.

This makes the cry for relaxed regulations one that is difficult for voters -- and therefore politicians -- to hear.

However, the regulatory impediment to business growth is both real and complicated.

There is no question in our minds that some regulatory actions inhibit the creation of new jobs. With job creation as a major factor in reviving the economy, regulations that inhibit job growth should be calmly examined.

We use the Gibson Guitar case as an extreme example of the problem of government regulations hindering businesses. One might argue that the Gibson case has nothing to do with the creation of new jobs.

However, if Gibson ultimately goes out of business, as a result of the costs of seized materials and legal fees, more than 500 US workers at Gibson plants in the US would lose their jobs.

The gap created if such a company went out of business would be filled by the quickly growing Chinese companies that are now making guitars of very high quality -- nearly all of which have Indian ebony fingerboards.

Relaxing governmental regulations on businesses would go a long way to helping new job creation, but we fear that actions such as the raid on Gibson are more likely to reinforcement government officials view of themselves as noble protectors of the world's environment, rather than inhibitors of economic growth.

Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com