The International Trade Commission (ITC) has issued its report entitled Use of the “First Sale Rule” for Customs Valuation of U.S. Imports.

From August 20, 2008 to August 19, 2009, importers were required to provide a declaration to U.S. Customs and Border Protection when the transaction value of the imported merchandise is determined on the basis of the “first or earlier sale” of goods (i.e. first cost), This declaration was required when there was more than one sale for export to the U.S., and the first cost values were being used to determine the value for duty.

The following are highlights of the report:

• Over the 12-month period investigated, from September 1, 2008, to August 31, 2009, a total of 23,520 unique importing entities reported using the “first sale rule.” These account for 8.5% of all U.S. importing entities.

• Of the $1.63 trillion in total U.S. imports over the period, $38.5 billion was imported using the “first sale rule,” or about 2.4% of total U.S. imports. Another indication of frequency is that importing entities used the “first sale rule” on average in 2.9 different months during the year, although no information is available on the average number of shipments imported using the rule.

• “First sale” use is not always associated with high tariffs. For example, importers reported using “first sale” when no duties would ordinarily be paid. These include approximately $8.1 billion of imports from Canada, Mexico, and the U.S. Virgin Islands, accounting for 21% of all “first sale” imports. There are also numerous cases of “first sale” use for products that are unconditionally free of duty from all countries with normal trade relations status. It is unclear how or why “first sale” is being used in these instances. Although no data are available on the total number of pre-import transactions, it is possible that some importers may have reported “first sale” use in situations where there was only a single sale.

• ITC estimated that $1.411 trillion of U.S. imports used the transaction value method one of several methods of valuing imports from September 1, 2008, to August 31, 2009. CBP estimated that this method is used to value approximately 86.4% of total U.S. imports. The transaction value method is based on the price actually paid or payable by a buyer for a good, plus adjustments for certain fees such as commissions, packing, royalties, and licensing fees. “First sale” use is only allowed when the transaction value method is the method of customs valuation appropriate to an importation.

Congress has directed CBP to postpone any action on the First Sale Rule until at least January 1, 2011.

The current interpretation of the “first sale” rule allows importers to use the price paid by the intermediary (sometimes referred to as middleman) to a foreign manufacturer (the first sale) as the basis for transaction value. In 2008 CBP proposed that the price paid by the buyer in the U.S. to the foreign supplier form the basis for valuation in a series of sales importation scenario.

The ITC report (Publication 4121, dated December 2009) is available at: