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

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FIGURE 2.2 By value, a few broad sectors accounted for most First Sale use First Sale value by broad sector (Total: $38.5 billion) Source: CBP (September 2008–August 2009 First Sale data). FIGURE 2.3 The value of First Sale merchandise as a share of total import value was particularly high for textiles, apparel, footwear, food, and agriculture Machinery, transportation, and computers Electrical equipment Textiles, apparel, and footwear Raw materials Food and agriculture Other manufacturing Metals and metal products Plastics and rubber Average First Sale share (2.4 percent) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Share of total import value (percent) Sources: CBP (September 2008–August 2009 First Sale data) and U.S. Department of Commerce. 2-8
Tariffs are only one of several potential determinants of First Sale use, however. Characteristics of the U.S. importing company, the distribution channel of the product, the exporting company, or institutions in the exporting country may also be important. For example, First Sale cannot be used as a method of duty reduction unless the imported product has a supply chain that contains multiple sales and the importer has sufficient knowledge of the supply chain to report the price paid in an earlier sale in a foreign country. Smaller firms, or those importing through a broker, may not have enough information about prices of foreign sales to take advantage of the First Sale rule, even if use of the rule would be beneficial to them. 17 Alternatively, an importer may have excellent knowledge about its foreign suppliers but receive the goods directly from the factory, leaving the firm unable to benefit from the rule. 18 Although data collected by the CBP do not contain specific company or supply-chain characteristics, many products show either a relatively higher rate of First Sale use despite low tariff rates (e.g., beverages), or a relatively lower rate of First Sale use despite high tariff rates (e.g., madeup textile articles), indicating that nontariff characteristics may be important determinants of First Sale use. 19 Reported First Sale use is quite high in a number of food and agricultural sectors. Although many products in these sectors have high normal trade relations (NTR) tariff rates, a substantial portion of imports in these sectors enter with low duties or enter free of duty, often under U.S. trade agreements. For many products that enter with low duty rates, food and agriculture suppliers use the First Sale rule for a relatively higher share of imports. The fruit and nuts sector provides a good illustration of this pattern. The fruit and nuts sector has the highest rate of First Sale use (over 10 percent) among all HTS chapters that can be publicly disclosed, despite very low average duties paid (less than 1 percent). 20 Multiple products in this sector exhibit relatively higher rates of First Sale use despite low tariff rates. Bananas, for example, have one of the highest rates First Sale use (over 40 percent), even though all bananas enter the United States free of duty. 21 Moreover, for many fruit and nuts with higher NTR tariff rates, substantial First Sale use comes from countries whose goods are often eligible for duty-free entry. An example is the use of First Sale for frozen strawberries from Chile, which enter free of duty under the U.S.-Chile Free Trade Agreement. 22 17 Information requirements may be a concern even for larger companies; see the discussion in the extract from Target Corporation’s written submission to the Commission, found in chap. 1. 18 In some cases, importers may have reported using the First Sale rule when the series of transactions consisted of a single sale. The extent to which this occurred cannot be determined, however, as the number of import transactions in a series of sales is not contained in the First Sale data. 19 In appendix table D.3, see HTS chapter 22 for beverages (particularly HTS 2208) and chapter 63 for made-up textile articles. 20 Further, most products in the fruit and nuts sector that are not free of duty are subject to specific tariffs. Specific tariff rates are based on import quantity rather than value. Using the First Sale rule to reduce the reported value of an imported good would not lower the assessed duties on products subject to specific rates. 21 See HTS 0803.00.20 in app. table D.3. 22 See HTS 0811.10.00 in app. table D.3. 2-9
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 and 18: 2008-August 2009). 8 Section 15422(
Page 19 and 20: imports designating First Sale use
Page 21 and 22: CHAPTER 2 Analysis of First Sale an
Page 23 and 24: 2009, and then remained relatively
Page 25 and 26: FIGURE 2.1 The number of importers
Page 27: Value of Imports That Used the Firs
Page 31: The use of the First Sale rule for
Page 34 and 35: U.S. International Trade Commission
Page 37 and 38: A-3
Page 39 and 40: A-5
Page 41 and 42: A-7
Page 43: APPENDIX B FEDERAL REGISTER NOTICES
Page 46 and 47: 120 Federal Register / Vol. 74, No.
Page 49: APPENDIX C SUMMARY OF POSITIONS OF
Page 52 and 53: Law Offices of Stewart and Stewart
Page 55: APPENDIX D ADDITIONAL TABLES
Page 58 and 59: Table D.2 provides data on First Sa
Page 60 and 61: TABLE D.2 First Sale data by source
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TABLE D.3 Detailed import data for
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"First Sale Rule" for Customs Valuation of US Imports - USITC

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