Changing the Valuation Landscape: CBP Seeks to Elimate the First Sale Rule
U.S. Customs and Border Protection (CBP) proposed in the Federal Register last week a major change to its method of appraising foreign goods imported into the U.S. in instances involving multiple sales transactions, commonly known as the "first sale rule".
Under U.S. law and international conventions, the method for valuing goods is based on the transaction value, or “the price actually paid or payable for merchandise when sold for exportation to the United States”. 19 U.S.C. 1401a; General Agreement on Tariffs and Trade, Article VII (Valuation Agreement). These sources do not identify the method for determining the price actually paid in circumstances where a foreign producer sells to a foreign distributor, who then sells to a buyer in the U.S.
CBP’s longstanding practice, however, has been to use the price paid by the buyer in the first or earlier sale to compute the “transaction value” in multi-sale transactions. CBP is now proposing to change its interpretation of the term “transaction value” to the price paid in the last sale occurring before goods are imported into the U.S.
This proposal, if adopted, would modify or revoke prior administrative rulings and directives. See e.g., T.D. 96-87, vols. 30/31 Cust. B. & Dec. Nos. 52/1 (January 2, 1997). Moreover, the proposal would greatly affect transactions involving a series of sales by valuing imported products on the basis of the price paid by the U.S. importer, rather than the price paid by a foreign middleman. Under current CBP practice, for example, in a case involving multiple sales transactions, the value of foreign goods is based on the price the foreign intermediary paid for goods he purchased from a foreign producer. Under the proposed rule, if adopted, the value of imports would be based on the price the U.S. buyer paid for goods he purchased from the foreign intermediary.
CBP’s proposal comports with a recent determination of the World Customs Organization's Technical Committee on Customs Valuation (“Technical Committee”), an international body tasked with harmonizing the interpretations of the General Agreement on Tariffs and Trade (GATT) text. The Technical Committee recently assumed the task of reviewing and harmonizing the disparate interpretations of “transaction value” among various countries’ administrations. The Technical Committee concluded that the transaction price is the price paid in the last sale occurring before the goods are shipped to the country of importation, considering the fact that it is more practical to verify relevant price information for such a transaction. CBP announced the proposed change in its application of the term “transaction value” shortly after the release of the Technical Committee’s commentary.
Public comments regarding CBP’s proposal may be submitted to the Trade and Commercial Regulations Branch, Customs and Border Protection, by March 24, 2008.