On January 24, 2008, U.S. Customs and Border Protection (“CBP”) issued a Federal Register notice entitled “Proposed Interpretation of the Expression ‘Sold for Exportation to the United States’ for Purposes of Applying the Transaction Value Method of Valuation in a Series of Sales.” This proposed change in interpretation would modify the way in which the appraised value of merchandise is determined in certain transactions, resulting in significantly higher duties for importers employing the “first sale” method of calculating transaction value.
Under U.S. law, transaction value is the primary method for determining the appraised value of merchandise imported into the United States. When imports of merchandise involve multiple parties and multiple sales prior to the entry of the merchandise into the United States, questions arise as to which transaction is the proper basis of appraised value of the merchandise. Under current CBP standards, the transaction value of the first or earlier transaction (e.g., between the manufacturer and an intermediary) is the appropriate value for customs purposes, provided the importer can establish by sufficient evidence that the transaction was at arm’s length and that, at the time of the transaction, the merchandise was clearly “destined for exportation” to the United States. This is commonly known as the “first sale” rule, and the two-prong test was established by the Court of Appeals for the Federal Circuit in the case of Nissho Iwai American Corp. v. United States over 15 years ago.
CBP’s proposed interpretation would effectively undo the Nissho Iwai test and the “first sale” rule. Instead, in a series of sales prior to the entry of the merchandise into the United States, CBP proposes that the appropriate transaction value would be the price paid in the last sale occurring prior to entry. This change in interpretation would mean that an importer currently appraising merchandise under the “first sale” rule would, instead, have to value the merchandise at the price it paid any distributors or other intermediaries. This would almost certainly result in importers having to declare higher appraised values and pay greater duties for their imported merchandise.
CBP invites importers and other interested parties to submit written comments on the proposed change in interpretation. These comments are due on March 24, 2008.