US Customs and Border Protection (CBP) is granting the trade community a 30-day grace period from the enforcement of the August 20, 2008 requirement for a “first sale” importer declaration, required by Section 15422 of the 2008 Farm Bill (Food, Conservation, and Energy Act of 2008, Pub. L. 110-234, 122 Stat. 1547 (19 U.S.C. 1484 note) (the Act).  As a result, CBP will commence the enforcement of the first sale data collection requirement on September 20, 2008.

“First Sale” importations involve a series of sales prior to the importation of the merchandise, for example, those that include a sale from a foreign supplier to a foreign “middleman” or trading company, prior to the sale to the importing (United States) party.  Under the current “first sale rule,” under certain conditions, importers are allowed to declare a value at the time of entry that represents the first price paid or payable in a transaction that also involves an intermediary or middleman. The “first sale” to the foreign intermediary is typically lower than the “second sale” from the intermediary to the U.S, importer, which results in less duty paid on dutiable imports valued under this rule.

The Act requires importers to provide a declaration to CBP at the time of entry for all goods entered for consumption or withdrawn from warehouse, on whether the value was determined on the basis of price paid by the buyer in the first or earlier sale occurring prior to introduction of the merchandise into the United States. Under the new regulation, the reporting requirement is only in effect until August 19, 2009.

To meet this new requirement - 19 CFR § 141.61(g) - an importer of merchandise is required to enter an “F” next to the declared value at the line level on CBP Form 7501, or the electronic filing equivalent, if the declared transaction value of the imported merchandise is determined on the basis of the price paid by the buyer in a sale occurring earlier than the last sale prior to the introduction of the merchandise into the United States. No “F” indicator is needed if the “first sale” is not used to determine the entered value, or if the importation does not involve a series of sales transactions (i.e., purchased directly from a foreign supplier/producer).

• Enforcement Delayed to Sept 20th

In order to permit the trade community sufficient time to comply with the first sale declaration requirement, and thereby ensure the integrity of the data collected on importations, CBP is delaying enforcement of the first sale declaration requirement for 30 days.

As a result, CBP will commence the enforcement of the first sale data collection requirement on September 20, 2008. However, CBP strongly encourages the trade to implement the first sale declaration requirement as soon as feasible before September 19, 2008.  Entries subject to the first sale declaration requirement made between August 20 and September 19 will not be rejected based on any first sale declaration requirement and are eligible for a grace period for retroactive reporting. Retroactive reporting of the “first sale” declaration for entry summaries filed during the grace period to CBP has been extended to close of business October 17, 2008.

The CBP memorandum announcing the grace period may be found here.

The interim final rule may also be found by clicking here.

• “First Sale” Rule

“Transaction value” is the primary method of appraising imported merchandise and is defined in 19 U.S.C. 1401a as “the price actually paid or payable for merchandise when sold for exportation to the United States,” with certain statutory specified additions (e.g., assists, buying and selling agent commissions, packing costs, royalties, proceeds of a subsequent resale and marine insurance premiums) and deductions (e.g., discounts, international air and ocean freight) to that amount.

Under the current “first sale rule,” importers are allowed to declare a value at the time of entry that represents the first price paid or payable in a transaction that also involves an intermediary or “middleman.” This interpretation allows the importer to use the lower price paid or payable in the first sale between the manufacturer and middleman, rather than the higher price paid or payable in the second (or last) sale between the middleman and the actual importer provided that it meets this two-prong test:

(1) The importer can prove that the sale between the manufacturer and middleman was an arm’s length sale (through such documents as the invoice covering the first sale to the middleman); and

(2) The importer provides documentation that the goods were clearly destined for export to the United States at the time of such sale.

Section 15422 of the Act was prompted by CBP’s earlier proposal to end use of the first sale rule in a series of sales, and to use the last sale prior to importation into the United States instead.  On January 24, 2008, CBP published a proposed new interpretation of the expression “sold for exportation to the United States.” In a transaction involving a series of sales, CBP proposed that the price actually paid or payable for the imported goods when sold for exportation to the United States would be the price paid in the last sale occurring prior to the introduction of the goods into the United States, instead of the first (or earlier) sale. Transaction value would have been determined on the basis of the price paid by the buyer in the United States under the proposal.

The proposal was met with resistance by the trade community and Congress who claimed it would increase duties and force companies to change their business practices. CBP Commissioner W. Ralph Basham recently said his agency will not move forward with considering any change in the first-sale rule before 2011. The interim final rule states that CBP is withdrawing the January 24 notice of proposed interpretation.

Section 15422 of the Act, however, requires CBP to provide the collected information to the International Trade Commission (ITC) on a monthly basis. The ITC is required to submit a report to the House Ways and Means Committee and the Senate Finance Committee within 90 days of receipt of CBP’s final monthly report.

If you have questions or comments regarding the “First Sale” rule reporting requirement, please do not hesitate to contact David Hamill, David Salkeld or anyone in Arent Fox’s international trade practice group.

David R. Hamill
hamill.david@arentfox.com
202.857.8940

David Salkeld
salkeld.david@arentfox.com
202.857.6478