ITC Report Finds That Relatively Few Importers Use "First Sale Rule" to Determine Import Duties

ITC recently concluded a review of the "first sale rule" as required by the Food, Conservation, and Energy Act of 2008. Its report was submitted to the House Ways and Means and the Senate Finance Committees on December 23, 2009.

(For the purpose of this review, during the period of August 20, 2008 - August 19, 2009, importers were required to provide a declaration to U.S. Customs and Border Protection at the time of filing a consumption entry when, in a series of sequential sales, the transaction value of the imported merchandise is determined on the basis of the "first or earlier sale" of goods (i.e., the first sale in which the goods are "sold for exportation to the U.S." or any other sale earlier than the last sale prior to the introduction of the merchandise into the U.S.).)

ITC Found That Relatively Few Importers Use "First Sale Rule"

As required by the legislation, ITC provided data regarding the frequency and value of "first sale" using tariff and sector classifications, based on data provided by CBP. Highlights of the report are as follows:

Over the 12-month period investigated, from September 1, 2008, to August 31, 2009, a total of 23,520 unique importing entities reported using the "first sale rule." These account for 8.5% of all U.S. importing entities.

In terms of import value, of the $1.63 trillion in total U.S. imports over the period, $38.5 billion was imported using the "first sale rule," or about 2.4% of total U.S. imports. Another indication of frequency is that importing entities used the "first sale rule" on average in 2.9 different months during the year, although no information is available on the average number of shipments imported using the rule.

"First sale" use is not always associated with high tariffs. For example, importers reported using "first sale" when no duties would ordinarily be paid. These include approximately $8.1 billion of imports from Canada, Mexico, and the U.S. Virgin Islands, accounting for 21% of all "first sale" imports. There are also numerous cases of "first sale" use for products that are unconditionally free of duty from all countries with normal trade relations status. It is unclear how or why "first sale" is being used in these instances. Although no data are available on the total number of pre-import transactions, it is possible that some importers may have reported "first sale" use in situations where there was only a single sale.

ITC estimated that $1.411 trillion of U.S. imports used the transaction value method one of several methods of valuing imports from September 1, 2008, to August 31, 2009. CBP estimated that this method is used to value approximately 86.4% of total U.S. imports. The transaction value method is based on the price actually paid or payable by a buyer for a good, plus adjustments for certain fees such as commissions, packing, royalties, and licensing fees. "First sale" use is only allowed when the transaction value method is the method of customs valuation appropriate to an importation.

(See ITT's Online Archives or 08/19/09 news, 09081905, for BP summary announcing that the "first sale" declaration requirement ended August 19, 2009.

See ITT's Online Archives or 01/07/09 news, 09010710, for BP summary of ITC institution of investigation for its report to Congress.)

ITC report (Publication 4121, dated December 2009) available at http://www.usitc.gov/publications/332/pub4121.pdf

ITC news release (09-106, dated 12/23/09) available at http://www.usitc.gov/press_room/news_release/2009/er1223gg1.htm