Retroactive Filing of First Sale Declaration Extended
The First Sale declaration requires that importers 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 is based on the First Sale. Under the First Sale method, the value of imported merchandise is determined on the basis of the earlier than the last sale prior to the introduction of the merchandise into the U.S.
Due to the short notice of the implementation of the First Sale declaration requirement, CBP allowed the trade a 30-day grace period to comply with the first sale requirements, covering entries filed between August 20, 2008 and September 19, 2008. Importers were allowed to submit spreadsheets listing entry summary lines that needed an “F” indicator added or removed to the ports of entry where the entry summaries were filed. A sample spreadsheet can be found here.
These corrections, originally to be submitted to CBP no later than September 26, 2008, can now be submitted to CBP until October 17, 2008. The period covered remains August 20, 2008, through September 19, 2008.
First Sale Declaration Requirement Effective August 20, 2008
The First Sale Declaration Requirement was established under § 15422(a) of the Food, Conservation and Energy Act of 2008, commonly referred to as the Farm Bill. To meet the Requirement, an importer must enter “F” next to the declared value of the merchandise on CBP Form 7501, or its electronic filing equivalent, if the declared transaction value of the imported merchandise is determined on the First Sale basis. If First Sale is not the basis for the transaction valuation, the box will remain blank.
The trade community has advised CBP that it would not be ready to comply with the Declaration Requirement by August 20, 2008 because of the complex programming changes required. In response, to permit the community sufficient time to comply, CBP has delayed enforcement of First Sale Declaration Requirements for 30 days until September 20, 2008. Thus, imports made between August 20 and September 19, 2008 will not be rejected based on the First Sale Declaration Requirement; however, these entries will require amendment. Information on the amendment requirements will be forthcoming.
The First Sale Declaration Requirement will enable CBP to gather information on the frequency of the first sale valuation, which will be reported to the International Trade Commission.
First Sale Valuation to Remain Permissible Through At Least 2010 & "10+2" Rule May Be Finalized by End of Summer
Specifically, Basham stated that in January of this year, CBP published in the Federal Register a Notice of Proposed Interpretation seeking public comment of the phrase "sold for exportation to the United States" for purposes of applying the transaction value method of valuation in a series of sales scenario. Under the proposed interpretation, transaction value would be based on the price paid by the buyer in the U.S. to the foreign manufacturer, which is a departure from the current application of the valuation statute, which allows importers to use the price paid by an intermediary to the foreign manufacturer as the basis for transaction value. Basham noted that the proposed re-interpretation of the valuation statute that would disallow "first sale" valuation has been "controversial."
Basham noted that the recently passed Farm Bill (Food, Conservation and Energy Act of 2008 (Pub. L. No. 110-246)) requires CBP to collect valuation information from importers and included a sense of Congress that CBP should not publish a final interpretative rule on this issue before January 1, 2011. He then stated that, "CBP does not intend to proceed further on the proposal on first sale before January 1, 2011. Nor will we change the current interpretation with respect to first sale without consulting with Congress and the private sector, or without the explicit approval of the Secretary of Treasury." With respect to first sale, Basham stated:
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The Farm Bill instructs CBP to require each importer of merchandise to declare whether the transaction value of the imported merchandise has been determined on the basis of a first or earlier sale.
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CBP is required to submit a report that includes the number of importers that declare transaction value on the basis of first sale, the tariff classification of such merchandise and the value of the merchandise, on a monthly basis to the United States International Trade Commission (USITC).
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We have had preliminary discussions with the trade and are examining the most efficient means of collecting the required information while minimizing the impact on the trade.
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The Farm Bill also includes a sense of Congress that CBP should not proceed with its proposed interpretative rule until January 1, 2011 and upon certain coordination and consultation with Congress, the Commercial Operations Advisory Committee, the International Trade Commission, the Secretary of Treasury, and the trade. CBP does not intend to proceed further on the proposal on first sale before January 1, 2011. Nor will we change the current interpretation with respect to first sale without consulting with the Congress and the private sector, or without the explicit approval of the Secretary of Treasury.
Other items of interest include the status of the proposed "10+2" rule or Importer Security Filing, which requires importers to provide CBP with 10 data elements plus 2 data elements from carriers electronically at least 24 hours prior to vessel loading at foreign ports of origin. The proposed ten data elements are:
- Manufacturer (or supplier) name and address
- Seller (or owner) name and address
- Buyer (or owner) name and address
- Ship-to name and address
- Container stuffing location
- Consolidator (stuffer) name and address
- Importer of Record number/foreign trade zone (FTZ) applicant identification number
- Consignee number(s)
- Country of origin
- Commodity Harmonized Tariff Schedule number
The two additional elements required from carriers are: (1) a vessel stow plan used to transmit information about the physical location of cargo loaded aboard a vessel bound for the United States; and (2) container status messages, which report container movements and changes in status (e.g., empty or full).
It has been reported that in response to questioning by the committee, Basham stated that CBP hopes to submit the rule to the Office of Management and Budget (OMB) by the end of the week and have it ready for publication by the end of the summer.
Protective "First Sale" Language Included in Farm Bill
On January 24, 2008, U.S. Customs and Border Protection (CBP) published a notice in the Federal Register setting forth its proposed interpretation of the phrase "sold for exportation to the United States," which would effectively eliminate the use of "first sale" valuation. CBP's proposed interpretation has drawn bipartisan opposition in the House, where 51 members wrote Department of Homeland Security Secretary Michael Chertoff in an April 18 letter to ask that the CBP proposal be "immediately withdrawn."
The Senate summarizes the protective first sale language as follows:
First Sale. The longstanding practice of “first sale” allows an importer to assess the value of imported goods based on the first sale of goods destined for the United States, regardless of when that sale occurred. Without consulting Congress or the importing industry, U.S. Customs and Border Protection (CBP) has proposed regulatory changes to assess duties on the “last sale” rather than the “first sale” value of goods. Such a change could increase significantly the duties paid by American importers. The farm bill (1) requires CBP to collect information on the number of importers that value imports using the “first sale” methodology; (2) requires the United States International Trade Commission to provide Congress with a report on the number of importers using “first sale” methodology, and the value of those imports; and (3) expresses a sense of Congress that CBP should not implement its change in interpretation until at least January 1, 2011.
Thus, while the language in the farm bill does not prevent CBP from eliminating first sale, it does require CBP to study the change to determine how much more revenue it would collect and companies would be affected. It also includes non-binding "sense of Congress" language that the change should not be implemented until 2011.