CBP Withdraws Proposed “Last Sale” Rule

Sep 30, 2010   

Preservation of First Sale Doctrine Seen as Victory for Importers

U.S. Customs and Border Protection (CBP) published a notice in the Federal Register today formally withdrawing its proposed rule to determine the value of imported merchandise for customs valuation purposes based on the last sale prior to importation of the merchandise. In a victory for importers who spent years fighting the rule, CBP will preserve the “first sale” doctrine for import valuation.

Merchandise is often bought and sold in a series of transactions between the foreign manufacturer and various foreign middlemen prior to the merchandises entry into the United States. Embraced by Customs over twenty years ago, the first sale rule allows U.S. importers to set the customs value of the merchandise upon the first sale between the manufacturer and a middleman. This allows U.S. importers to capture the manufacturers price for the goods, and avoid paying customs duties upon the additional mark-ups charged by foreign middlemen. The result for importers was big savings in duties and fees paid to the United States.

In January 2008, however, CBP proposed new rules which would base the customs value of imported merchandise on the price paid in the last sale prior to the merchandises entry into the United States. While CBP believed that this “last sale” rule would more correctly estimate the entered value of the goods, industry groups and leading American importers argued that the real result of the proposed rule would be higher prices for American consumers and the complete jettisoning of court and Customs rulings on valuation upon which importers had been able to rely.

Members of the Senate and House soon climbed aboard the bandwagon calling for the withdrawal of the proposed last sale rule. A “Sense of the Congress” provision was passed in May 2008 instructing CBP not to implement the proposed rule before January 1, 2011, and not without first consulting with Congress and trade advisory groups, and only then with the approval of the Secretary of the Treasury.

The outcry over the proposed rule was even greater when then-CBP Commissioner Ralph Basham acknowledged that the rule had been proposed without substantive consultations with Congress and the trade community.

While the proposed last sale rule has languished, and CBP has been publicly stating since August 2008 that it would not implement the proposed rule, current CBP Commissioner Alan Bersin only recently committed to formally withdrawing the rule. In a letter to the National Association of Manufacturers (NAM), Bersin also committed to clearing up the backlog of ruling requests, and to developing an internal process to highlight to management any substantive regulatory initiatives, major proposed rulings and modifications of existing rulings prior to their publication.

Todays withdrawal of the proposed last sale rule and the Bersin letter to the NAM are seen as signs that CBP is starting to address some trade regulatory issues that have been nagging importers for years. As Bersin describes, the Agency is widely expected to soon announce final rules on country of origin markings, and proposed rules increasing the values for de minimis and informal entry shipments; these values have not been updated in over 15 years.