In a significant victory for U.S. consumers and businesses, Congress has moved to stop U.S. Customs and Border Protection from revoking the First Sale Rule. CBP proposed to eliminate this favorable import valuation methodology in January, a move that ignores 20 years of federal judicial precedent and could raise import tariffs by as much as 15 percent. CBP has been inundated with opposition from the private sector, including an industry coalition spearheaded by Sandler, Travis & Rosenberg, P.A., but lawmakers concerned about the lack of transparency in the process CBP used to develop this proposal and how it could affect a struggling domestic economy are acting to make sure that CBP does not go ahead with it.
The “First Sale” rule was established by the court in Nissho Iwai American Corp. v. United States, 982F.2d 505 (Fed. Cir. 1992) and set forth in Treasury Decision 96-87 (“T.D. 96-87”).
It applies in instances where merchandise is imported into the United States as a result of “back-to-back” sales. Typically, the first sale is from a foreign manufacturer to a foreign middleman and the second sale is from the foreign middleman to the U.S. importer. Under the “First Sale” rule, an importer can base the transaction value (or the appraised value) of the imported goods on the lower price that the middleman paid to the foreign manufacturer rather than on the higher price that the importer paid to the middleman, if a two-pronged test is met.
The court in the Nissho Iwai case ruled (1) that the goods must be “destined for the U.S. at the time of the first sale” and (2) that the sale represents a “viable transaction value.”
In practice, this meant that if the sale was an arm’s length sale and an importer could produce documentation that the goods were sold to the middleman as a result of a U.S. purchase order, the two-pronged test was met. The use of this rule has become increasingly popular since 1993 and has allowed U.S. importers significant duty savings over the past 15 years.
(Source: http://www.strtrade.com/ and Bryan Cave Publication http://www.bryancave.com/bulletins/ on Jan. 25, 2008 IRN No. 377)