In this ever-evolving tariff landscape, many importers have turned to “first-sale” valuation in an effort to mitigate duties. It has become clear that US Customs and Border Protection (CBP) has strengthened its enforcement of the “first-sale” valuation method, putting the emphasis on thorough observance of the required criteria. The “first-sale” valuation method allows importers involved in multi-layered transactions to declare the transaction value between the manufacturer and the middleman, resulting in a potential reduction of duties.

First Sale: 

To legitimately apply the “first-sale” valuation, importers must satisfy the following critical conditions:

1.  The sale between the middleman and the factory is a bona fide sale for export to the United States.
2.  The sale between the middleman and the factory is fairly negotiated (“at arm’s length”) and is free from non-market influences that affect the legitimacy of the sales price.
3.  There must be sufficient information available with respect to the amounts, if any, of any statutory additions set forth in 19 U.S.C. §1401a(b)(1) (i.e., packing costs, selling commissions, assists, royalty or license fees, and proceeds of any subsequent sale).
4.  There is a complete paper trail of the imported merchandise showing the structure of the entire multi-tiered transaction (see Treasury Decision (“T.D.”) 96-87, Dec. 23, 1996).

Documentation Requirements:

1.  Purchase order from the middleman to the factory
2.  Factory invoice to middleman and corresponding proof of payment
3.  Middleman invoice to Importer and corresponding proof of payment
4.  Foreign inland transportation documents (e.g., trucking invoices) demonstrating the movement of goods from the factory to the port
5.  International shipping documents (e.g., forwarder’s cargo receipt, bill of lading, etc.) demonstrating the movement of goods from the port to the importer in the United States
6.  Raw material purchase documentation, if provided to the factory by the middleman

USITC Use of the “First-Sale Rule” for Customs Valuation of US Imports

CBP Ruling:

An example would be CBP’s recent ruling, H316892, which determined there was not a bona fide sale in existence between the manufacturer and the middleman—specifically, the middleman did not take title to, or assume the risk of loss for the underlying goods, as part of the transaction based on the Incoterms. As a result, CBP stated that the importer could not use the first-sale price at the time of entry. Instead, the importer had to value the goods based on the price it paid to the middleman.

It is the importer’s obligation to exercise reasonable care in appraising imported goods. It is crucial to conduct ongoing reviews of first-sale transactions to ensure compliance with CBP regulations and to mitigate potential challenges.

CBP is closely scrutinizing first-sale claims and will not allow the claims in which the intermediary entities are not the true buyers assuming financial risk and ownership.

Importers currently utilizing or considering the first-sale valuation method should proactively:

• Review their supply chain structures and Incoterms
• Review documentation around title transfer, purchase orders, etc.
• Confirm the intermediary is functioning as a bona fide buyer/seller, not merely as a pass-through
• Seek the advice of a Trade Attorney to review and confirm the transaction qualifies

RIM logistics, ltd. will continue to closely monitor this evolving situation and provide updates as necessary. Please reach out to your RIM representative if you have any further questions.