Customs Withdraws First Sale Proposal

(Sandler, Travis & Rosenberg, P.A.)

The formal notice withdrawing U.S. Customs and Border Protection’s January 2008 proposal to revoke the First Sale Rule will be published in [today’s] Federal Register. A copy of this notice can be found here.

CBP’s formal action withdrawing the proposed notice is directly related to our efforts. When this issue was brought to light a few months ago, our team acted immediately urging stakeholders on Capitol Hill as well as administration officials to insist that CBP formally withdraw its notice proposing elimination of first sale valuation. Read more here.

Companies, Trade Groups Warn of New Efforts to Eliminate First Sale Rule

(World Trade Interactive)

More than 100 companies and trade groups sent a letter to leaders of the House Ways and Means and Senate Finance committees March 24 urging them to ensure that U.S. Customs and Border Protection does not again attempt to eliminate the First Sale Rule. CBP withdrew an earlier proposal, which opponents claimed would have resulted in an 8%-15% increase in duty liability for all imports, in 2008 after an outpouring of opposition from the trade community. Congress then directed CBP to postpone any action on the First Sale Rule until at least Jan. 1, 2011.

The First Sale Rule was judicially established more than 20 years ago and is used by many U.S. importers to legally lower import duties. Simply stated, the FSR allows the entered value of a qualifying transaction to be based on the purchase price between the vendor and the factory rather than the importer and the vendor. The FSR may apply even if the vendor is related to the importer and/or the factory or there are multiple levels of vendors.

Expressing concern that CBP may once again contemplate the revocation of the FSR, the 75 companies and 36 associations that signed the March 24 letter highlighted a December 2009 International Trade Commission report documenting the “widespread use” of this methodology. Read more here.

First Sale Indicator No Longer Required on Entry Summaries

(World Trade Interactive)

U.S. Customs and Border Protection has announced that the requirement for importers whose shipments are valued using the First Sale Rule to indicate that on their entry summaries ended effective Aug. 19. CBP was required to collect this information and forward it to the International Trade Commission, which is conducting a review of the use of the First Sale Rule for U.S. imports during the 12-month period that began Aug. 20, 2008.

The 2008 farm bill, which effectively bars CBP from proceeding with a proposal to revoke the First Sale Rule, also required importers to declare at the time a consumption entry was filed if the transaction value of the merchandise covered by that entry 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 U.S. In order to implement this requirement, importers were required to enter the letter “F” in a miscellaneous indicator field of the entry summary for each entry line where the declared transaction value of the imported goods was determined on the basis of the first sale price.

Using the information generated by these entry summaries, the ITC expects to submit to the House Ways and Means and Senate Finance committees by Feb. 10, 2010, a report that includes the following information:

• the aggregate number of importers declaring that the transaction value of the imported merchandise is determined on the basis of the First Sale Rule, including a description of the frequency of the use of that method

• the tariff classification of such merchandise on an aggregate basis, including an analysis by sector

• the aggregate transaction value of such merchandise, including an analysis by sector

• the aggregate transaction value of all merchandise imported into the U.S. during the specified period

Source document: End of Delcaration of First Sale memorandum (PDF).

ITC Investigation Will Examine Use of First Sale Rule

(World Trade Interactive)

The International Trade Commission has launched an investigation on the use of the First Sale Rule with respect to the customs valuation of imported goods.

The 2008 Farm Bill requires the ITC to submit to the House Ways and Means and Senate Finance committees a report that includes the following information.

• the aggregate number of importers declaring that the transaction value of the imported merchandise is determined on the basis of the First Sale Rule, including a description of the frequency of the use of that method

• the tariff classification of such merchandise on an aggregate basis, including an analysis by sector

• the aggregate transaction value of such merchandise, including an analysis by sector

• the aggregate transaction value of all merchandise imported into the U.S. during the specified one-year period

The ITC does not plan to hold a public hearing in the course of this investigation. However, interested parties are invited to submit written comments no later than April 30. The ITC anticipates that it will transmit its final report to Congress by February 10, 2010.

To assist the ITC in preparing its report, the Farm Bill requires U.S. Customs and Border Protection to provide monthly reports for the period August 20, 2008, through August 19, 2009, that include (a) the number of importers declaring that the transaction value of the imported merchandise is determined on the basis of the first or earlier sale, (b) the tariff classification of such merchandise and (c) the transaction value of such merchandise.

Extension of the Retroactive Filing for the First Sale Declaration Requirement

(CBP)

The purpose of this notice is to extend the last filing date for retroactive First Sale Declarations which was effective, by law, August 20, 2008.

The First Sale Declaration Requirement requires that an importer of merchandise enter an "F" next to the declared value at the line level on CBP Form 7501, or the electronic filing equivalent, when 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. Due to the short notice to the public of the systemic implementation of this filing requirement, CBP allowed the trade a 30 day grace period to comply with the “First Sale” requirements. The grace period covered entries filed between August 20, 2008 and September 19, 2008. Filers were allowed to submit to the respective ports of entry were the entry summaries were filed, spreadsheets listing entry summary lines that need the “F” indicator. CBP would, in turn, make the correction to the entry summary line in the Automated Commercial System. The trade was asked to submit these desired corrections to CBP no later than September 26, 2008.

CBP has been mandated by Congress to collect this data for the International Trade Commission. In an effort to collect the best data available, CBP is extending the date for corrections (either to input “F” or remove “F”) to October 17, 2008. The period covered remains August 20, 2008 through September 19, 2008, during which filers may have not been operationally ready to due to system issues or legislative intent challenges.

Using spreadsheets is, by far, the most expedient method to ensure the data is correct. Again, the spreadsheet format may be used to either update a required "F" indicator or remove an "F" indicator which was erroneously entered.

Questions regarding this policy should be directed to Ms. Cynthia Whittenburg, Chief, Entry, Summary, and Drawback at (202) 863-6519 or email to cynthia.whittenburg@dhs.gov.

CBP Withdraws Proposal to Eliminate First Sale Rule

(Vicki DeLuca — VP Operations, GHY USA, Inc.)

Attention: GHY Customers

The First Sale option for Valuation will stay in effect — nothing changes as far as the regulations for using the First Sale and the required back up to prove it if customs comes calling.

Keep in mind that the litmus test for sales qualifying under the “First or Earlier Sale Rule” is that the material must be sourced by the middleman in accordance with a predetermined sales agreement with the U.S. buyer, that the articles were made for the U.S. buyer (supported by a P.O. from the buyer to the middleman dated prior to the middleman’s P.O. to the source), with shipping documents from the source supporting that the articles are being shipped direct to the middleman’s buyer or the buyer’s designated consignee. It’s advisable to secure an acceptance of such pricing from CBP before filing entries in this manner.

It will be more important than ever to have supporting documents and ensure all is in order if you are using this method — as effective YESTERDAY (only US Customs can get away with making something effective yesterday and publishing it this coming Monday) — if you are using the First Sale Method it must be clearly marked on your US Customs Invoice so the Customs Broker can clearly see that you want that method reported to CBP. We now have to flag an indicator in the US Customs entry. Which ultimately means they can now run reports on importers - the # of shipments, values, origins etc that are using First Sale method of valuation and send out requests and audit those importers. They are very aggressive with issuing penalties for non-compliance.

Click here to view a Trade Notice regarding this issue from one of our trade associates, the U.S. trade law firm of Sandler, Travis & Rosenberg, P.A.

If you have any questions about this, on’t hesitate to contact Joan Studeny in Pembina or Bob Cowie in Winnipeg.

Grace Period Set for Implementation of First Sale Declaration Requirement

(USCBP)

A grace period that is being granted to importers with regard to the implementation of the First Sale Declaration Requirement established under section 15422(a) in the Food, Conservation and Energy Act of 2008, commonly referred to as the Farm Bill.

The First Sale Declaration Requirement refers to the requirement for importers to provide a declaration to CBP at the time of entry for all goods entered for consumption or withdrawn from warehouse 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.

To meet this requirement the First Sale Declaration Requirement requires that an importer of merchandise must enter an “F” next to the declared value at the line level on CBP Form 7501, or the electronic filing equivalent, when 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.

Under the Farm Bill, the First Sale Declaration Requirement is effective for a one-year period beginning August 20, 2008.

The interim rule describing the First Sale Declaration Requirement will be on public display at the Federal Register on August 20, 2008, but will not be published until after August 20, 2008.
Further, the Trade has advised CBP that, due to the complexity of the programming changes required, it will not be ready to comply with the First Sale Declaration Requirement on August 20, 2008.

Accordingly, in order to permit the trade sufficient time to comply with the requirements in the First Sale Declaration Requirement, and thereby ensure the integrity of the data collected on importations, CBP will delay the enforcement of the First Sale Declaration Requirement for 30 days.

Thus, CBP will commence the enforcement of the data collection requirements contained in the First Sale Declaration Requirement on September 20, 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 requirements.

However, entries subject to the First Sale Declaration Requirement made between August 20 and September 19 will require amendment. Information describing how the amendments will be made will be forthcoming.

The Trade is, however, strongly encouraged to implement the requirements of the First Sale Declaration Requirement as soon as feasible before September 19, 2008

First Sale Declaration Requirement

(CBP)

U.S. Customs and Border Protection’s trade office on Thursday advised the trade community of new reporting requirements to ensure that importers comply with the new declaration requirements passed in the Farm Bill related to transaction value of imported merchandise.

Effective August 20, importers are required to provide CBP with an “F” indicator next to the declared value at the line level on CBP Form 7501, or the electronic equivalent, when 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. This element must be submitted for each line on the entry summary, CBP form 7501. Under the Farm Bill, the declaration requirement is effective for a one year period.

Due to the complexity of the programming changes required, CBP is delaying the reporting of the First Sale Declaration Requirement for 30 days to allow the Trade time for software programming changes. However, entries subject to the First Sale Declaration Requirement that were not reported between August 20 and September 19, will require amendment. CBP will provide further guidance describing the amendments shortly. Additional information is available here.

Eliminate Middlemen and Save on U.S. Customs Duties

(Tom Travis — Entrepreneur.com via MSNBC)

Importers today are typically being told they’re buying directly from the factory, that it’s the manufacturer who is selling to you. In fact, you’re usually buying through multiple parties, each that’s taking its own markup on the goods, adding to the amount of duty paid once the goods arrive in the United States. As a result, importers are trying to reduce U.S. duties by using a “first sale” concept.

Simply stated, the First Sale Rule allows the value entered to U.S. Customs to be based on the purchase price between the middleman and the factory, rather than the middleman and the importer. Importantly, the First Sale Rule may also apply to U.S. imports where the middleman is related to the importer and/or the factory or when there are multiple levels of middlemen. Working back to the price between the actual manufacturer and the immediate buyer substantially reduces the amount of duties, provided that all the appropriate requirements of the customs valuation statute are satisfied. This concept currently may be utilized in both the U.S. and the European Union.

It’s not always possible to work backward from your immediate seller to the actual manufacturer. Sometimes the parties in the transaction are afraid of giving away too much information about their markups or are concerned about revealing too much about the parties they do business with. However, even working back one level in the sales transaction can result in significant duty savings. While at times it seems almost impossible to penetrate the wall of silence and obtain the needed pricing information, experience shows that your suppliers are key to overcoming this problem. Read the complete article.

U.S. Farm Bill Addresses Transaction Value Interpretation

(Expeditors Newsflash)

On May 15, 2008, House Bill H.R. 2419, commonly known as the Food, Conservation, and Energy Act of 2008 or “Farm Bill”, passed the House and Senate and is now cleared for submission to the President. Language in the bill addresses U.S. Customs and Border Protection’s (CBP, Customs) January 24, 2008 proposal regarding transaction value of imported merchandise.

According to the bill, Customs will require importers to report, at the time of entry, “whether the transaction value of the imported merchandise is determined on the basis of the price paid by the buyer in the first or earlier sale occurring prior to introduction of the merchandise into the United States.”

This requirement would be effective for one year beginning 90 days after the date of the enactment of the Food, Conservation, and Energy Act. On a monthly basis during the one-year period, Customs would report the information provided by importers to the International Trade Commission (ITC). The report would include:

• the number of importers that declare the transaction value of the imported merchandise is determined on the basis of the price paid by the buyer in the first or earlier sale
• the tariff classification of imported merchandise
• the transaction value of the imported merchandise.

After the one-year reporting period, the ITC would report to Congress the following:

• the aggregate number of importers that declare the transaction value of the imported merchandise is determined on the basis of the price paid by the buyer in the first or earlier sale
• a description of the frequency of the use of the “first or earlier sale” determination method
• the tariff classification of imported merchandise, and an analysis on a sectoral basis
• the aggregate transaction value imported merchandise, and an analysis on a sectoral basis.

In a section of the bill titled “Sense of Congress Regarding Prohibition on Proposed Interpretation of the Term ‘Sold For Exportation to the United States’”, Congress noted that the Customs Commissioner should not implement a change to Customs’ interpretation of the term “sold for exportation to the United States,” as it relates to determining transaction value, before January 1, 2011, unless the Commissioner consults with, and provides notice to Congressional committees, the Commercial Operations Advisory Committee (COAC) and receives approval of the Secretary of the Treasury.

The full text of H.R. 2419, the Food, Conservation, and Energy Act of 2008 or “Farm Bill”, can be accessed online here (PDF format).