Customs switches gears on first sale

U.S. Customs and Border Protection has decided to withdraw its controversial proposal to abolish the first sale methodology for determining duty values in order to meet a recent congressional mandate to first study the issue, Assistant Commissioner Daniel Baldwin said this month during a public meeting on trade matters.

The Department of Homeland Security agency angered many importers early this year when it declared plans to require duty values to be based on the price of the last sale in a multiparty transaction. Basing duty rates on the less expensive first sale to a foreign middleman means importers pay lower duties on their goods. Opponents complained a reversal could have raised the cost of imported goods by 8 percent to 15 percent.

The agency argued that the complexity of first sale transactions makes it hard to ensure proper revenues are being collected.

After a barrage of intense lobbying, Congress intervened last spring and included language in the 2008 Farm Bill urging CBP to postpone until 2011 any change in the valuation approach and instructing it to collect data for one year on the number of importers declaring entries under first sale, the tariff numbers used and the transaction value for that merchandise. The information is to be submitted to the International Trade Commission on a monthly basis and considered as part of any future decision on the matter as the government tries to quantify the extent to which first sale is used for the entered value. The ITC is responsible for reporting back to Congress on how often first sale is being used, including statistics on the number of importers, the types of commodities that receive first sale treatment and the transaction value of the merchandise.

Baldwin told the Commercial Operations Advisory Committee gathered in Seattle that Commissioner Ralph Basham opted to change course to focus on the data requirements of the bill.

Under the law, importers must declare whether first sale has been used in a series of sales. The agency plans to create a simple field in the electronic customs entry filing system, or Automated Broker Interface, for businesses to enter an F next to the declared value on the entry summary if they employ the practice or leave blank if they don't, the assistant commissioner for international trade said.

That's an important point because that means no programming changes are required of the importers whatsoever, Baldwin said.

The second data point that needs to be assessed is whether importers use the transaction value as their method of customs appraisement. CBP does not currently collect that information and trade groups have objected to declaring the transaction value of a sale.

Through negotiations with the ITC and Capitol Hill, CBP has developed a work around on gathering information on appraisement to avoid imposing any additional reporting requirements on importers not using first sale.

CBP will use a random sample rather than collect that information on every entry, Baldwin said. The agency currently reviews 70,000 randomly selected customs entries per year to measure the general state of industry's compliance with trade regulations. Officials plan to ask about transaction value on the post-entry review questionnaire to ensure that the question gets answered every time.

The ITC has agreed that this approach could substitute for collecting data on 100 million entries that are filed each year and that they could in fact use that statistically valid sample to extrapolate the universe of transaction value and meet their requirements, Baldwin said.

CBP will soon publish an interim rulemaking to implement the new requirements, he said. The law firm of Sandler, Travis & Rosenberg, which took a leading role in rallying industry opposition to CBP's effort to revoke first sale, said in a client bulletin Thursday that the agency will publish the rulemaking in the Federal Register on Aug. 25.

Although the Farm Bill requires first sale declarations to be made beginning Aug. 20, CBP has delayed enforcement until Sept. 20 to give the trade sufficient time to comply. CBP will accept declarations filed earlier, but importers remain obligated to accurately declare the use of First Sale and amend these entries if necessary, Sandler & Travis cautioned.

Source: American Shipper