First Sale

The Issue:

For the purposes of collecting customs, the values of imported goods have historically been determined by the price paid for the good at its “First Sale” for export.  That is, the price at which the good is sold by the factory.  This is based on statute, which looks to the value of the good when it is exported to the United States.  By valuing imports in this way businesses pay smaller duties on imported merchandise, and are therefore able to charge their customers lower prices.

On January 27, 2008, U.S. Customs and Border Patrol (Customs) announced a proposal to change the way imported goods are appraised and do away with First Sale.  The proposal called for duties to be assessed on the price paid by the final importer, which is usually far greater because of markups added by middlemen.  The main result of Customs’ proposal would be to substantially increase tariffs on many goods imported to and sold in the US.  This would increase costs to companies, many of whom would have to pass this cost onto their consumers by raising prices.

AAFA on the Issue:

The AAFA strongly opposes Customs’ proposed rule change, and is spearheading a coalition of businesses and associations to defeat it.  The “First Sale” rule was established by the courts twenty years ago, and has been repeatedly upheld in court (and by Customs) since then.  If Customs’ proposal moves forward, it will overturn decades of legal precedents and change the rules by which American businesses have long operated.  AAFA further believes that Customs does not have the authority to overturn well-established case law.

What’s more, such a substantial increase in duties would force businesses to raise their prices, thereby harming American consumers and the economy as a whole.  In effect, Customs wants to impose a hidden tax on consumers, and is proposing to do so at a time when the economy can least afford it.

The Latest News:

09.22.08
AAFA members are reminded that the grace period for submitting the new First Sale declaration requirement ended on September 20, 2008. Until August 19, 2009, First Sale entries will need the special F designation next to the declared value at the line level on CBP Form 7501, or the electronic filing equivalent. Folks who entered First Sale entries during the period August 20, 2008 until September 19, 2008, need to go back and file an amendment before September 26. Complete information on these requirements can be found in some of the attachments and via the following First Sale link on the CBP website. AAFA members are also urged to sign on to a draft joint letter welcoming the CBPs announcement (made August 25) that it is withdrawing last January’s notice to revoke the First Sale rule. Companies interested in signing on to the joint letter should contact Steve Lamar before COB October 3.

09.08.08
On August 25, US Customs and Border Protection published a notice announcing plans to withdraw its proposal to revoke the popular First Sale valuation rule. That notice also provides information on how importers can declare they are using the First Sale rule to comply with a Congressional mandated data collection requirement for the year beginning August 20, 2008.

06.30.08
Under pressure from Congress and a coalition of trade associations led by AAFA, US Bureau Customs and Border Protection (CBP) Commissioner W. Ralph Basham announced at a June 24 Senate Finance Committee hearing that CBP “does not intend to proceed further on the (CBP) proposal on ‘first sale’ before January 1, 2011.” First sale is an import valuation methodology that allows importers to use the first price of a good destined for export to the United States for the purposes of assessing duty. This price is typically far lower than the price paid to the final importer, as the intermediate parties between the factory and the final importer tend to mark-up the price substantially. CBP's proposal to eliminate this practice, published in January, received widespread criticism on the grounds that it would represent a sudden departure from long-standing customs practice and established case law, and was made without any consultation with the trade community. The AAFA-led coalition succeeded in bringing the issue to the attention of Congress, which effectively stopped CBP's proposal with provisions inserted into the recently approved Farm Bill. In his testimony, Commissioner Basham also acknowledged that "Nor will we (CBP) change the current interpretation with respect to first sale without consulting with the Congress and the private sector, or without the explicit approval of the Secretary of Treasury."

5.19.08
Last week, both chambers of Congress approved by overwhelming majorities an extension of key Caribbean Basin trade provisions and a statement in support of the First Sale rule as part of a multi-billion dollar bill reauthorizing farm programs. Although President Bush has threatened to veto the popular farm bill - because of his disagreements with Congress over agricultural policies - conventional wisdom holds that Congress will override the President’s veto.

Included in the bill is a 2-year extension of the Caribbean Basin Trade Partnership Act and a 10-year extension and expansion of the Haiti (HOPE) trade bill. At the last minute Congress included a provision to delay and obstruct efforts by US Customs and Border Protection (CBP) to revoke the First Sale valuation rule. AAFA issued a Key Vote letter in support of the bill because of these trade provisions. Unfortunately, a provision that would have promoted partnerships with trouser producers in the Dominican Republic was left off the Farm Bill at the last minute. AAFA will work toward passage of that measure as soon as possible.

3.17.08
A controversial effort to repeal the popular First Sale rule came under attack in the Senate Finance Committee last Thursday during a hearing on Customs reauthorization. Senate Finance Committee Chair Max Baucus (D-MT) and ranking Minority Member Chuck Grassley (R-IA) both criticized a Customs plan to reinterpret First Sale to do away with this valuation methodology. They argued that the proposal overturns more than 20 years of precedent, and that it would subject companies and consumers to increased duties and taxes. Meanwhile, House members have begun to circulate a letter urging Customs to withdraw the proposal.

02.25.08