CBP backs off First Sale

   U.S. Customs and Border Protection has apparently shelved its latest attempt to undermine the First Sale privilege, to the relief of importers.
   The First Sale rule, which has been upheld by federal courts, allows a company to base the value of an imported finished good for duty determination on the cost of the product at the first sale to a middleman rather than the value at the time of importation.
   It’s a common practice among retailers because they save money by paying duty on the price of a good from the factory before it is marked up by a purchasing agent. In the apparel and footwear industries duty rates can be 18 percent or more.
   As I reported on this page three issues ago, CBP wanted import specialists to collect much more documentation to verify that first sale transactions are legitimate and no resources were provided by the importer to the manufacturer to lower production costs. Any assistance normally has to be factored into the first sale price.
   In September, CBP informally advised various trade associations that the proposed changes to its Informed Compliance guidebook will be withdrawn, according to a client note from Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt. The agency said its intent was not to change policy or the law on first sale, but instead wanted to provide clearer guidance about which documents would be required during an audit of first sale transactions. 
   Many first sale supporters objected to CBP using a firm laundry list of required documents because many of them are difficult to obtain from foreign vendors which are concerned about their confidentiality. Officials suggested they could hold further discussions with the trade community to clarify audit requirements.

This column was published in the December 2014 issue of American Shipper.