Under the Consolidated preliminary draft of the European Union Customs Code (“UCC”) Implementing Act issued January 13, 2014, proposed language provides “For the purposes of Article 70(1) of the Code, the value of the goods shall be determined at the time of acceptance of the customs declaration on the basis of the transaction occurring immediately before the goods are declared for free circulation.” Article 23 of the European Community (“EC”) Treaty stipulates” free circulation” for Community goods throughout the European Community (EC), meaning that the proposed rule would require the value of goods imported into the EC to be based on the last transaction that results in the entry of the merchandise into the EU, rather than a possible earlier sale outside of the EU with a lower sale price.
For purposes of determining customs value, the EC (like the US) currently permits valuation based on the “first sale” rule, which provides that for customs valuation purposes the transaction value of an imported article can be based on the first sale of the article in the chain of distribution provided the sale is destined for ultimate export to the EC. For example if an item is produced by a foreign manufacturer and sold to a distributor outside of the EC, who then marks up the item and then re-sells it to an EC importer, the importer can base the transaction value on the first sale price to the distributor. While the onus is on the importer to verify the first sale price and demonstrate to customs authorities that the article in question was first sold for export to the EC, for large importers or importers of high duty rate merchandise, this can result in significant savings in customs duties.
A similar effort by US Customs a number of years ago to do away with the first sale rule was met by strong opposition in the trade community and ultimately was not successful. Similarly the proposed UCC rule is drawing strong opposition from the EC trade and at this point it remains to be seen whether the prosed rule change will go into effect. A worst case scenario for importers in the U.S. would be that the measure gains approval in the EC, reinvigorating U.S. Customs to attempt once again to implement the same rule change in the U.S. For this reason importers who utilize the first sale rule to reduce their import duties should keep this issue on their radar screen.