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Valuation and the First Sale Rule
First, let's define a few terms:
1) Per the World Trade Organization (WTO), the customs value of a shipment is based on the transaction value of the imported goods, and the transaction value is the "price actually paid or payable for the goods when sold for export to the country of importation." Customs value is the entered value for merchandise imported into the U.S.
2) A series of sequential sales (common in import transactions) consists of two or more successive contracts for sales of goods. One example is where the import transaction involves a sale between the manufacturer and a foreign intermediary and another between a foreign intermediary and a U.S. buyer.
3) A "first or earlier" sale (in a series of sequential sales) is any sale occurring earlier than the last sale prior to the introduction of the merchandise into the United States. In the above example, the sale between the foreign intermediary and the U.S. buyer is considered the last sale prior to the introduction of the merchandise into the United States. The sale between the manufacturer and the foreign intermediary is classified as the "first or earlier" sale.
Basics of the interim rule:
For one year beginning on August 20, 2008, all importers are required to provide a declaration to Customs (CBP) 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. If the value is not based on the final sale, then Customs is requiring the entry to have an "F" indicator next to the declared value at the line level on Customs entry summary when it is filed.
For most entries, the U.S. Customs entered value of a shipment is based on the transaction value of the merchandise at time of the final sale and not a "first or earlier" sale. Since basing the transaction value on a "first or earlier" sale usually results in lesser duties being paid, Customs wants to collect data regarding these entries. Therefore, all entries which have entered values based on anything other than the final sale need to be flagged so that Customs can collect the information they need. Customs will be reporting the frequency of the use of the "first sale" rule and other associated data to the International Trade Commission on a monthly basis.
Brief Background:
Per the Save First Sale website, current regulations and legal precedents interpret the dutiable transaction value to be "based on the sale price of the first arm's length transaction for goods clearly destined for export to the U.S. which allows "first sale" valuation." Essentially, this means that U.S. importing companies can lawfully minimize import duties, fees, and taxes by basing the customs import value on the manufacturer's sale price to an intermediary rather than the intermediary's sale price to the U.S. importing company."
Until January 1, 2011, provisions of the Farm Bill will prevent Customs from proposing any changes to the current interpretation of the regulations with respect to "first or earlier" sale. After January 01, 2011, the data collected "could" be used in order to try to amend the current regulations, and the question will become whether or not those who use the first sale provisions will need to prepare to fight against a new regulation sometime after that date.
For further information, please visit the following web sites:
Customs FAQ:
http://www.cbp.gov/xp/cgov/trade/trade_programs/cargo_summary/
first_sale/first_sale_guidance.xml
Save First Sale:
http://savefirstsale.com/home.aspx
10 + 2 update
Also known as Importer Security Filing and Additional Carrier Requirements, the 10 + 2 rule was received for review by the Office of Information and Regulatory Affairs (OIRA) on 08/26/2008. This rule is still under review by the OIRA, and it is uncertain how long it will last. It is also uncertain what the results of the review will be.
As we have noted in previous editions of AIT eNewsletters, when enacted, 10 + 2 will require an expanded security filing from importers including expanded trade data for ocean containers loaded at foreign ports and destined for the United States. This filing comprises 10 new data elements from Importers reported no less than 24 hours prior to loading and 2 new elements from carriers prior to arrival in the US. The goal is to allow CBP to enhance its security targeting.
CBP expects the new rule to be phased in over a period of one year, beginning in late 2008 for ocean transport and expanded to other modes thereafter.
Elements concerning the importer or its agent include the following:
- Manufacturer (Supplier) name and address
- Seller name and address
- Container stuffing location
- Consolidator name and address
- Buyer name and address
- Ship-to name and address
- Importer of record number
- Consignee number
- Country of Origin
- HTSUS number (at 6 Digit level)
If you have any questions or comments regarding the Compliance eNewsletter,
please contact Paul Codere from the Customs Brokerage Department. |
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