Customs Proposes Eliminating "First Sale" Valuation

On January 24, 2008, U.S. Customs and Border Protection (CBP) published a notice in the Federal Register proposing to change its practices with regard to the proper customs valuation of imported products in multi-sale transactions. 

Specifically, CBP is proposing rejecting the use of "first sale" valuation and instead requiring the use of the "last sale," i.e., the price paid in the last sale occurring prior to the introduction of the goods into the U.S., as the basis of transaction value for such products. 

Under current conditions, importers may value imported products in situations involving multiple sales (e.g., those involving a sale from the manufacturer to a middleman overseas and a sale from the middleman to the buyer in the U.S.), at the "first sale" price between the manufacturer and the overseas middleman if certain conditions are met. Specifically, the first sale must be an arm's length sale and the goods must be clearly destined for export to the U.S.

CBP proposes changing its interpretation of the meaning of "sold for export to the United States" when determining the acceptability of transaction value in multi-sale transactions by accepting only the last sale to the U.S. in meeting this requirement of transaction value. CBP states this change is based on a report to the World Customs Organization (WCO) by the Technical Committee on Customs Valuation adopted in April 2007 -- Commentary 22.1, entitled, "Meaning of the Expression 'Sold for Exportation to the Country of Importation' in a Series of Sales" -- and would align CBP's treatment of such sales with most other World Trade Organization (WTO) members.

CBP's proposed action would overturn nearly 20 years of legal and administrative precedent and would cause importers to reevaluate their current customs valuations and abandon any current use of "first sale" valuations, resulting in the potential payment of additional duties and fees.
This notice comes as great surprise to importers and the trade who believed that this issue was well-settled law. See, McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988); Nissho Iwai America Corp. v. United States, 982  F.2d 505 (Fed. Cir. 1992); Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993).     

For importers who have obtained rulings and/or have structured their import transactions around this rule, it is critical that they respond to CBP with their comments.  However, "first sale" valuation has never been embraced by CBP and it seems unlikely that CBP will back off from this position now that they appear to have support from the WCO. Based on informal conversations with CBP, they appear ready to contest the issue in court.  However, it also appears unlikely that the Federal Court of Appeals will reverse itself.  

Is this the first of many value issues that are being reviewed internally by CBP?  See our article in this newsletter regarding comments at the AAEI conference last week by the head of the Value Branch, Office of Regulations and Rulings, on transfer pricing.  It is our understanding that another Federal Register Notice will be coming out soon regarding this issue. 

CBP is accepting comments on the proposed interpretation eliminating the use of "first sale" valuation until March 24, 2008. Global Trade Expertise is prepared to assist clients with filing comments on your behalf, please contact either Jennifer Kessinger at (925) 876-1381 or by email at or Tammie Krauskopf at (708) 707-4087 or