"First Sale Rule" for Customs Valuation of US Imports - USITC

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tariff classification. Chapter 2 also includes an estimate of the aggregate transaction value of all U.S. merchandise imports during September 2008–August 2009 (part D). The CBP provided monthly First Sale data to the Commission covering August 20, 2008– August 31, 2009. 9 These data include dates (month and year), tariff classifications at the 8-, 6-, 4-, and 2-digit HTS levels, the number of importers 10 designating use of First Sale, the customs value of the transactions, the shares of this value accounted for by the top two importers, and the countries of origin. (The importer shares were needed in order to apply confidentiality requirements.) The total number of importers, a figure used to calculate the frequency of First Sale use, was obtained from the Customs Net Import File (CNIF). For both First Sale and CNIF data, the Commission applied confidentiality rules derived from the separate Commission and CBP rules, employing the more restrictive rule in each case. 11 Data are reported only if both of the following conditions hold: • The value of the largest firm’s imports is less than or equal to 70 percent of the total value of imports within the applicable HTS provision, and • The combined value of imports of the two largest firms is less than or equal to 90 percent of the total value of imports within the applicable HTS provision. The First Sale data in this report reflect information supplied by importers to the CBP in response to a question on import declarations regarding whether the transaction value was based on the first or earlier sale. 12 The values and percentages in this report are not necessarily definitive indicators of the extent to which importers use the First Sale rule to reduce their customs values and duty liability. One important caveat is that importers may have indicated that the first or earlier sale was used in cases where there was only one sale, in which case there would be no middleman and no financial advantage to using the First Sale rule to reduce customs values. Another caveat is that because the indicator of First Sale use was a new data element in the import declaration, there may have been a lag between the time when the CBP added the question to import declaration forms and the time when importers became fully informed about compliance, potentially leading to underreporting. An analysis of monthly data, however, indicates that the percentage of 9 The CBP did not capture any First Sale data from December 10, 2008 to December 17, 2008, even though they were correctly included in import declarations. The data are missing due to the side effects of a change in programming to support the transition from the old ACS import processing system to the new ACE import processing system. The programming error was identified by CBP staff and corrected within a week. The original data cannot be recaptured without imposing significant additional costs on importers. This loss of data affects totals reported in chap. 2 for December 2008 (CBP official, e-mail communication to Commission staff, January 7, 2008). 10 The “importer” field is essentially self defined by the importer and does not necessarily coincide with a single firm. There may be many “importers” for one firm or one “importer” (such as customs broker or a wholesaler) may be importing for many firms. Variations can also result from different parts of the same company entering information inconsistently or simply from data entry errors. Consequently, the number of “importers” cannot be directly interpreted as the number of companies or firms. See chap. 2 for discussion. 11 In general, the Commission will not disclose aggregate company data if the largest firm accounts for 75 percent or more of the total value of imports or if the two largest firms combined account for 90 percent or more of the total value of imports. For a description of Commission practice in this regard in countervailing duty and antidumping duty investigations, see “Antidumping and Countervailing Duty Handbook Thirteenth Edition,” at http://www.usitc.gov/publications/year_in_review/documents/handbook.pdf, II-24–II-25. CBP confidentiality rules state that data can be disclosed if the value of the largest firm is less than or equal to 70 percent of the total value of imports and if the number of firms is greater than two (CBP official, e-mail communication to Commission staff, March 31, 2009). 12 Refer to 73 F.R. 49939 (August 25, 2008), which describes how Form 7501 will be utilized to gather data to be submitted to USTR. 1-4
imports designating First Sale use (on a value basis) became fairly stable after September 2008, suggesting that any underreporting due to importers’ lack of familiarity with the reporting requirement was most likely of limited duration. 13 In addition, because the data provided by the CBP were collected at the time of entry, they do not reflect potential later information reconciliation. As the Target Corporation noted in a written submission to the Commission, A significant amount of information and documentation is necessary to establish whether use of the “first sale” valuation method is appropriate. Importers do not always have that information at the time of entry and therefore may enter the merchandise on the basis of a “last sale” valuation and flag the entry for possible reconciliation. Once the information necessary to establish value under the first sale rule is available, the importer may then file the reconciliation entry declaring the “first sale” value. The information CBP is providing to the Commission is being collected at the time of entry. Importers have up to twenty-one months after the date of entry to file a reconciliation entry. Thus, the data CBP is providing to the Commission would not capture entries in which “first sale” value was declared through the reconciliation process. As a result, the CBP data could underestimate the use of “first sale.” 14 As noted above, requirement (part D) directs the Commission to assess the transaction value of all U.S. imports during a one-year period. One of several methods that can be used to determine the value of imports, transaction value, is based on the price actually paid or payable by a buyer for a good, plus adjustments for certain costs such as commissions, packing, royalties, and licensing fees. 15 Although there are other ways of determining customs value, the preferred method, under U.S. law, is transaction value; 16 as discussed in the next chapter, this is the method used for the majority (86.4 percent) of merchandise imported into the United States. Importers can use the First Sale rule only if they are valuing merchandise using the transaction value method. Consequently, First Sale imports are a subset of imports valued using the transaction value method. To determine the requested aggregate transaction value, the CBP provided the Commission with the responses to a question asked as part of its Entry Summary Compliance Measurement (ESCM) survey under its Compliance Measurement program. 17 The ESCM survey verifies that imports have been correctly classified and that 13 See chap. 2 for details. 14 Target Corporation, written submission to the USITC, April 24, 2009, 2. 15 For a detailed description of “transaction value,” see CBP, “Importing into the United States,” revised November 2006, 86–91; or 19 U.S.C. § 1401a(b). 16 “Under the [Trade Agreements Act of 1979], the preferred method of appraisement is transaction value.” CBP, What Every Member of the Trade Community Should Know About: Customs Value, revised July 2006, 7. “If the transaction value cannot be used, then certain secondary bases are considered. The secondary bases of value, listed in order of precedence for use, are transaction value of identical merchandise; transaction value of similar merchandise; deductive value; [and] computed value.” CBP, “Importing into the United States,” revised November 2006, 85; 19 U.S.C. § 1401a(a)(1)(A)-(E). 17 “Compliance Measurement is the primary tool CBP uses to assess the accuracy of port of entry transactions and to determine the compliance rate for all commercial importations. By using statistical sampling methods, a valid compliance level for all commercial importations can be obtained. . . . Cargo is sampled for compliance with international trade laws at the port of entry, at the time of entry into the United States.” CBP, “Importing into the United States,” revised November 2006, 34. 1-5
Page 1 and 2: United States International Trade C
Page 3 and 4: U.S. International Trade Commission
Page 5: PREFACE This report responds to the
Page 8 and 9: 12 10 8 Figure ES.1 Only the textil
Page 11: ABBREVIATIONS AND ACRONYMS 2008 Act
Page 15 and 16: CHAPTER 1 Introduction Every year,
Page 17: 2008-August 2009). 8 Section 15422(
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Page 25 and 26: FIGURE 2.1 The number of importers
Page 27 and 28: Value of Imports That Used the Firs
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Page 31: The use of the First Sale rule for
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Page 43: APPENDIX B FEDERAL REGISTER NOTICES
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Page 49: APPENDIX C SUMMARY OF POSITIONS OF
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Page 55: APPENDIX D ADDITIONAL TABLES
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