Monday, January 11, 2010

First Sale Data

Because I have previously discussed my views on the Customs and Border Protection proposal to interpret the valuation statute to do away with the so-called first sale rule, I probably should have mentioned that the International Trade Commission has published its congressionally mandated report on the topic. Note that the report is 255 pages, although the narrative is in the first 35 or so, the remainder is appendices and charts.

There is not a whole lot of data here. Here are some of the highlights based on data collected from September 1, 2008 to August 31, 2008:
  • 23,520 entities reported using first sale for valuation (8.5% of all importers)
  • Of those using first sale, 14% were in textiles, footwear, and apparel; 12% were in metals and metal products; 10% were in machinery, transportation, and computers
  • $38.5 billion of trade was affected (2.4% of all imports)
  • Of all first sale trade, by value 31% was machinery, transportation, and computers; 15% was electrical equipment; and 14% was textiles, apparel, and footwear
An interesting piece of data that is missing is the revenue lost by application of the first sale rule. The ITC did not have access to data showing the difference between the declared value and the fully-loaded cost to the importer. As a result, it is still not clear whether this is a big revenue issue for the U.S.

I must admit that I am a bit surprised by the number of entities using first sale and the diversity of the industries involved. Beyond that, I am not sure what conclusions Customs or Congress will be able to draw from this study. Customs original position has less to do with revenue than with international consistency and its reading of the value code. It seems unlikely that this report will change any minds at Customs. That means the question may well end up back in Congress.


Anonymous said...

Larry -

The "first sale" scenario is simply bad legal fiction since the first sale is NOT a sale for export to the US. This claptrap should never have occurred in the first place.

It's immaterial how many importers use it, they are all really cheating.

It's not the revenue loss so much as a principle of consistency that this legal fiction be abolished.

Of course the US should use CIF valuation on all imports, like most of the rest of the world; but that's another argument for another.

Your faithful RETIRED Customs officer.

Anonymous said...


(Left out the final word to comment above.)

Anonymous said...

Whenever a customs official says "it's not the revenue, it's the principle",. . . it's the revenue. Sale for export isn't legal fiction, it's law, and it's been around for awhile. The only thing that surpised me about the report was how few entities are using it and how small the affected volume of trade seems to be, perhaps because of marginal benefits due to declining tariff rates. I agree the report won't solve much politically.

Larry said...

The third comment beat me to most of what I have to say. It is important to keep in mind that first sale only applies when it can be shown through the documents or other objective means that the sale from the producer to the middleman was for export to the United States. The leading case on this involved suits made to order for U.S. customers. Clearly, the suit was sold for export even though it was sold to a middleman.

In the bigger picture, it is up to the Courts to determine the meaning of the law. The Court did that and found that what Congress put on the books permitted valuation based on a bona fide sale to a middleman where the sale is for export. Customs can disagree, but should accept that. It strikes me that the best way for CBP to approach this is to go to Congress for the change.

That said, I have read National Cable v. Brand X. I understand that agencies can re-interpret ambiguous laws. The question for the next Court to review this is whether 1402a is ambiguous on this point.

Larry said...

Oh, and despite our disagreement on this, I appreciate Retired Customs for his or her always insightful comments.