Customs Officials Ease Back on Changes for First-Sale Rule

Import & Export

As of Thursday, September 18, 2014

Customs officials have stopped pushing for major adjustments to the so-called “First-Sale Rule,” which would have required handing over a boatload of documents to validate where goods were made and at what price.

Basically, the First-Sale Rule allows importers to pay duties on the initial or lower price of an item charged by the factory rather than the higher value charged by a middleman or distributor who acquires the goods and then exports them to the United States.

U.S. Customs and Border Protection officials were planning to change the way importers qualified for the First-Sale Rule. Importers would have been required to produce a host of documents and invoices that started at the factory level and went all the way up the ladder to the middleman or distributor and the parent company. Documents would have had to have been in English, which means factories in places such as China and Vietnam would have been required to translate their invoices into English to verify the cost of the goods.

On July 9, CBP issued a draft-revised internal compliance publication that appeared to include all these additional requirements for using the First-Sale Rule. But several trade groups, including the American Apparel & Footwear Association, objected to the changes.

U.S. apparel and textile importers pushed back on the proposed rules because of the amount of required paperwork, which also would have divulged price-competitive information.

For now, indications from Customs and Border Protection officials is that they will shelve these new requirements but could revive them later.

“There was a lot of pushback by the trade,” said Los Angeles customs attorney Richard Wortman. “For the moment, this issue is off the table.”

But according to a newsletter issued by international law firm Sandler, Travis & Rosenberg, customs officials are likely to closely scrutinize the use of the rule.

Customs attorneys are recommending that importers make a detailed analysis of each vendor and factory that supplies them.