Customs Issues: Congress Acts on First Sale Doctrine

Issue 25, June 19, 2008

Last January U.S. Customs and Border Protection (CBP) proposed a change in the interpretation of “Sold for Exportation to the U.S.” for the use of the transaction value method of valuation when a buyer middleman is involved in the sale. Historically, in a transaction involving a series of sales the entered value would reflect the price paid to the seller on the transaction that resulted in the shipment to the United States provided the importer could demonstrate that the sale was an arm’s length sale and that the merchandise was clearly destined for exportation to the U.S. at the time of such sale. Often this was the sale between the foreign middleman and the seller, rather than the sale between the middleman and the buyer.

CBP proposed that in such a transaction, the price actually paid or payable for the imported goods is the price paid in the last sale occurring prior to the introduction of the goods into the U.S., rather than the first sale, in effect basing the value on the price paid to the middleman rather than the price that the middleman paid to the seller.

Congress passed the Farm Bill (H.R. 2419, titled "The Food, Conservation, and Energy Act of 2008") containing a section that effectively forbids Customs from eliminating the first sale doctrine. President Bush vetoed this bill for reasons not involving the first sale doctrine. Congress then overrode the veto and passed the bill again.

The bill as passed forbids Customs from changing the first sale program before Jan 1, 2011. However, the new law will also require Customs to change its entry regulations so that importers who declare First Sale valuation will be required to declare First Sale when the entries are filed. This means that importers will be required to declare that “first sale” value methodology is being used for the calculation of entered value effective for one year beginning on or around August 18, 2008. CBP has not as of yet informed the trade of the mechanism to do so. Once we have such information we will communicate accordingly.

Many importers have exercised their right and privilege to request a binding valuation ruling from the Value Branch at CBP headquarters as an exercise in reasonable care. Others have opted to use the First Sale valuation methodology based upon their own internal compliance review of applicability.

The bill also provides that, after January 1, 2011, Customs may again propose a change to its interpretation of the term "sold for exportation to the United States" Before proposing any change Customs must consult with, and provide notice to, the appropriate congressional committees; consult with the Commercial Operations Advisory Committee; and receive explicit approval of the Secretary of the Treasury.

For more information contact Karl Krueger, DHL Regulatory Compliance at karl.krueger@dhl.com.

Sincerely,
Karl F. Krueger
Regulatory Compliance Consultant
Licensed Customs Broker
NCBFAA Certified Customs Specialist