For logistics managers and supply chain officers responsible for their company’s overall transportation spend, 2020 and 2021 have proven to be difficult to highly impossible. Whether port congestion, astronomical rates, or lack of equipment, the ability to move cargo at forecast landed costs has evaporated. Added to these costs are additional duties for trade remedy actions ranging from antidumping or countervailing duties to Section 232 or Section 301 duties for unfair trade practices.
With all of these additions to the bottom line, importers are looking as far upstream as possible to reduce their costs legally. Simultaneously, it may be impossible to reduce what must pay the government in terms of percentages. But what if there was a way to lower the entered value of those duty percentages are based
- It is possible, it usually requires asking the government in advance, and it is a process known as “first sale.” Sobel can help importers investigate the feasibility of their supply chains.
First sale is identifying transactions where there are multiple parties and relationships between the foreign seller and the importer of record. This could add to the cost of an item and, under permissible circumstances, can go upstream in the transaction to a lower sale price between parties that the importer can claim as the entered value.
The regulations governing valuation are found in 19 CFR 152, “Valuation and Appraisement of Merchandise.” The basis for appraisement found here in 152.101 lays out the methodology by which can determine the value. Quoting:
(b) Methods. Imported merchandise will be appraised on the basis, and in the order, of the following:
(1) The transaction value provided for in § 152.103;
(2) The transaction value of identical merchandise provided for in § 152.104, if the transaction value cannot be determined, or can be determined but cannot be used because of the limitations provided for in § 152.103(j);
(3) The transaction value of similar merchandise provided for in § 152.104, if the transaction value of identical merchandise cannot be determined;
(4) The deductive value provided for in § 152.105, if the transaction value of similar merchandise cannot be determined;
(5) The computed value provided for in § 152.106, if the deductive value cannot be determined; or
(6) The value provided for in § 152.107, if the computed value cannot be determined.
The court case cited most frequently in discussions surrounding first sale dates back to 1992 and involves Nishi-Iwai, when a federal court determined the following conditions must apply to take advantage of the price from the seller to an intermediary:
- The first sale transaction (i.e., the transaction between the manufacturer and the intermediary) must be a bona fide sale, including the transfer of title to the goods.
- At the time of the first sale, the merchandise must clearly be destined for export to the United States.
- The manufacturer and the intermediary must be unrelated or, if related, conduct their transaction at arm’s length.
- The transaction must be absent from any distortive nonmarket influences.
Importers who have sought to utilize first sale have written to CBP, detailing the parties to the transaction, how it is invoiced, the relationships (if any) between the parties and the invoice values and markups applied from start to finish.
For an importer to secure permission to utilize the first sale price for their transaction value, they must have a fully transparent relationship with all intermediaries between themselves and the foreign manufacturer. Further, all parties must be comfortable making public how they benefit financially.
The Court of International Trade’s recent decision raises concerns for importers who wish to seek permission to utilize first sale when the origin of the goods is a nonmarket economy such as China. Mayer Brown summarized it, but effectively the plaintiff was denied first sale because the Court did not believe that it was truly an arms-length transaction and that such transactions are impossible. The more significant concern is that if the ruling and opinion hold, CBP could use this precedent to change how they view requests for first sale valuation on a going-forward basis.
Before utilizing first sale, an importer must consult with their customs broker or legal counsel to determine if possible and whether the achievable savings are worth the time to prepare and submit a valuation ruling request to CBP. Sobel Network Shipping has experience in this area, both in preparing these ruling requests or working with counsel to design and execute a comprehensive strategy that has the possibility of reducing costs at a time when seemingly the only direction they’re going is up.
