CIT to Meyer: Still No First Sale for Value

Remember Meyer Corp. v. United States? We discussed the original CIT decision in this post from 2021. That decision caused many quizzical discussions among trade nerds about whether the fact that a multi-tiered sale starts in China, a non-market economy, undermines an importer's ability to claim valuation for duty on the basis of the first sale. The Court of International Trade suggested that the Court of Appeals for the Federal Circuit might have to clarify. If none of this seems familiar to you, go back and read the earlier post.

In August of 2022, the Federal Circuit provided that clarification. That must have happened while I was in the "Blog Black Hole" of 2021-2022, which I am trying to dig out of now (you may have noticed). The decisive part of that decision states:

The trial court misinterpreted our decision in Nissho Iwai to require any party to show the absence of all “distortive nonmarket influences.” There is no basis in the statute for Customs or the court to consider the effects of a non-market economy on the transaction value. The statute requires only that “the relationship between [the] buyer and seller did not influence the price actually paid or payable.” 19 U.S.C. § 1401a(b)(2)(B). This provision concerns effects of the relationship between the buyer and seller, not effects of government intervention, and especially not with government intervention that affects the industry as a whole. Neither Nissho Iwai nor the government’s briefing identifies other statutes or regulations that could require Customs or the Court of International Trade to consider whether the goods were sold in a nonmarket economy or were otherwise affected by a nonmarket economy. 

That clears that up.

But, what about Meyer's claim for first sale treatment?

The Court of International Trade has now reached a decision on that and it is not good news for Meyer. The Court "doubled down" on its previously expressed concern that the financial data Meyer provided to show the bona fides of the first sale were insufficient. Specifically, the Court said that the information provided was not sufficient to "discern whether or not the parent of the plaintiff provided any form of assistance to reduce costs." The Court of International Trade found that "plaintiff's failure to provide the financial information requested by it [sic "of it"?] during discovery provided an independent reason as to why Meyer could not demonstrate a true first-sale value absent of influence . . . from the relationships of the related parties." 

The Court, therefore, on reconsideration following remand found first sale-valuation inapplicable.

This, like most first-sale cases, is a cautionary tale. First-sale for value is the law and importers have a right to use it as a legal means of duty avoidance. But, CBP seems deeply skeptical of it. In cases such as Meyer, where the parties are related, Customs is going to take a very detailed look into the whole series of transactions. The importer should expect to have to show that each tier is a bona fide sale for export to the United States at an acceptable transaction value. Where the parties are unrelated, proving that should be easier as the manufacturer wants to be fully compensated for its wares and should normally be considered free to set its price. That is, after all, an arms-length transaction. But, Customs will look at those transactions as well, even examining the second or third sales to ensure they are bona fide. That, to me, is way off the mark as the whole point here is to determine whether the first sale (or any sale) is an acceptable transaction value. If the any one sale meets that test, the importer can elect to use it as the transaction value. What happens in subsequent sales should be largely irrelevant.


Photo by Jonathan Kemper on Unsplash

[Disclaimer: what follows is not legal advice, is not complete, and is not based on any specific facts.] If you are contemplating first sale for value, get your ducks in a row. Ensure that your documents show evidence of a sale for export to the United States including the transfer of both title and risk of loss to the buyer. Ideally, this happens as more than a momentary legal fact (i.e., a "flash transfer") and you can point to a location where and period in which the buyer held title and risk of loss. Also, remember that the INCOTERMS do not identify when or where title transfers. That needs to be specified. Risk and title do not need to transfer at the same time, but the buyer should end up with both at some identifiable point in time. Honestly, I would argue that risk is irrelevant if the buyer gets title, but I am neither in charge of Customs nor a judge.



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