As the US moves closer to imposing higher tariffs on a wide range of goods imported from the EU, trade law firm Sandler Travis & Rosenberg says the first sale rule can be used to mitigate the impact of any such tariffs on EU exporters and lower costs well into the future.
Under the first sale rule established in litigation by ST&R more than 30 years ago and passed in legislation in 2008, the dutiable value of a qualifying transaction may be based on the purchase price between the middleman/vendor and the manufacturer, rather than the price paid by the importer to the middleman/vendor, resulting in a lower duty bill.
Various criteria must be met to use this method, including ensuring that the first sale price reflects a sale clearly destined to the US and conducted at arm’s length.
The first sale rule has long been useful to industries subject to high US tariffs, such as apparel and footwear, which use it to save millions of dollars in import duties each year.
The US is now considering 100% tariffs on imports from the EU in a long-running World Trade Organization dispute on aircraft subsidies. A new Section 301 case involving French digital services taxes could yield tariff increases as well, and Section 232 tariffs could be imposed on automobiles and auto parts from EU and other countries later this year.
The first sale rule could help EU exporters ease the burden of such measures at a time when volatility in trade policy has left some traditional methods of lowering costs unavailable and is threatening to eliminate others.
Beyond the current trade tensions, however, first sale can also serve as a type of long-term annuity, the trade law firm says – that is, even once additional tariffs expire, use of first sale valuation would continue to provide a lower declared value and thus reduce the regular duties assessed on a company’s products.
But US customs authorities are scrutinising imports that use this methodology more closely as part of a broader increase in enforcement efforts – meaning EU companies must take care to ensure compliance with first sale requirements.
The key is to take proactive steps to ensure that multi-tiered transactions meet first sale requirements and that there are internal controls and procedures in place to sufficiently document compliance.