Investigation Initiated Into Use Of First Sale Rule For Customs Valuation Of US Imports

Originally published January 6, 2009

Keywords: First Sale Rule, Customs Valuation,

US Imports, International Trade Commission, ITC, Food,

Conservation, and Energy Act, Farm Bill, imported goods, customs

duties, Customs and Border Protection, CBP,

The US International Trade Commission (ITC) has requested

written comments from interested parties as part of a

Congressionally mandated review regarding use of the "first

sale rule" for valuing US imports upon entry into the United

States. While no public hearings will be held, the received

statements may be used as part of a report that the ITC will

prepare on the issue, as required by the Food, Conservation, and

Energy Act of 2008 (the "Farm Bill"). Statements must be

received by the Secretary of the ITC by April 30, 2009, and conform

with the provisions of section 201.8 of the ITC's Rules of

Practice and Procedure. The report is projected to be released

in February of 2010.

The first sale rule is a method of determining the transaction

value of imported goods, which is typically used as a basis for

calculating customs duties and other fees upon entry into the

United States. "Transaction value" is defined under US

law as "the price actually paid or payable for merchandise

when sold for exportation to the United States." Items that

are imported into the United States may have been subject to a

series of sales during the importation process — e.g.,

from the non-US manufacturer, to an intermediary, to a US importer,

and finally to the US customer.

Until recently, the US Customs and Border Protection (CBP) took

the position that the US importer could value an imported good

based on the price paid in the first sale so long as the sale was

made at arm's length and the merchandise was clearly destined

for the United States. However, in January of 2008, CBP proposed a

technical change to its interpretation of tariff rules to abandon

the first sale rule in favor of using the price paid in the last

sale occurring prior to introduction of the goods into the United

States (for more information, see our Client Alert "

The First Shall Be Last: US Customs Proposal Would Broadly Increase

Tariffs on US Imports"). Such a change could drastically

increase the amount of customs duties and other fees paid by US

importers.

In May of 2008, the Congress enacted the Farm Bill, which, in

part, expressed its sense that CBP should maintain the first sale

rule at least until January 1, 2011. (On August 25, 2008, CBP

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