Transcript Presentation title slide - 42 pt Times New Roman, White

First Sale Rule / Declaration Requirement
Long Island Import Export Association
Thursday, November 13, 2008
What is a First Sale?
 In a series of sequential sales, between the manufacturer
and a middleman and another between a middleman and
a U.S. buyer, the sale between the manufacturer and the
middleman prior to the introduction of the merchandise
into the United States would be considered a “first or
earlier” sale.
 The sale between the middleman and the U.S. buyer is
considered the last sale prior to the introduction of the
merchandise into the United States.
* 3 criteria must be met in order to qualify for first sale.
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First Sale Rule Requirements
3 required elements for “first sale” rule:
Factory/Seller
Bona
fide sale
Arm’s
length
First
Sale
Middleman
Last
Sale
Importer/Buyer
Sale
between the
factory/seller
and the
middleman
caused the
imported
goods to be
exported to
the U.S.
1. There must be a bona fide sale between
the middleman and the manufacturer
(transfer of title, property or
consideration). Bona fide sale is a “good
faith” sale, meaning there truly is a sale
of goods between the parties.
2. There must be evidence from the
manufacturer that the merchandise was
clearly destined for exportation to the
United States at the time of such sale.
3. There must be an arm’s length sale
between the manufacturer and
middleman.
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1st Requirement for a First Sale
1. Bona fide sale between the middleman and the
manufacturer.
 Transactions involving goods that are shipped on consignment do not
constitute bona fide sales because the goods are not the subject of a
sale.
 In determining whether a bona fide sale has occurred, CBP will consider
the buyer-seller relationship, i.e. whether the potential buyer:
(a) provided (or could provide) instructions to the seller;
(b) was free to sell the imported merchandise at any price it desired;
(c) selected (or could select) its own customers without consulting the
seller; and
(d) could order the imported merchandise and have it delivered for its
own inventory (as opposed to the seller delivering the merchandise
directly to an ultimate U.S. consignee).
 The fact that a potential buyer cannot assume the above tasks is an
indication that the party is serving as an agent (i.e., selling or buying
agent) rather than as an independent buyer.
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2nd Requirement for a First Sale
2. Evidence from the manufacturer that the merchandise
was clearly destined for exportation to the U.S.
 In order to establish that merchandise is clearly destined for
exportation to the United States in a multi-tiered transaction, there
must be a complete paper trail relating to the imported merchandise
that shows the structure of the entire multi-tiered transaction.
 This would include invoices, sales contracts, purchase orders, proof
of payment, shipping contracts or other documentation for each
individual transaction involved in the multi-tiered transaction with
consistent prices, dates, parties and merchandise.
 Other evidence would include manufacture, design, and other unique
specifications or characteristics of the merchandise made in
conformity with the U.S. buyer's or importer’s standards; labels,
logos, stock numbers, bar codes and other unique marks; and
markings, visas, warranties or other types of certification or
characteristics required for the entry into and sale or operation of the
imported merchandise in the United States.
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3rd Requirement for a First Sale
3. There must be an arm’s length sale between the
manufacturer and middleman.
 CBP will consider a sale between unrelated parties to have
been conducted at “arm's length.”
 If the parties are related, however, a sale will be considered
to have been conducted at “arm's length” only (1) if an
examination of the circumstances of the sale of the
imported merchandise indicates that the relationship
between the buyer and seller did not influence the price
actually paid or payable or (2) if the transaction value
closely approximates a test value.
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T.D. 96-87, General Notice, Determining
Transaction Value in Multi-Tiered Transactions
 CBP presumes that the price paid by the importer is the basis
of transaction value and the importer bears the burden of
rebutting this presumption.
 Indicates that a complete paper trail is required to support a
first sale claim.
 The importer must provide a detailed description of the roles of
the various parties, and if they are related, must provide
information that shows the first sale is at arm’s length.
 Sufficient information must also be provided with regard to the
statutory additions to the price actually paid or payable (i.e.
packing costs, selling commissions, assists, royalty or license
fees, and proceeds of any subsequent resale).
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First Sale Declaration Requirement
 On May 22, 2008, Congress passed the Food, Conservation,
and Energy Act of 2008 (more commonly known as the “Farm
Bill”).
 The Farm Bill requires U.S. Customs and Border Protection
(CBP) to collect, for a one-year period beginning August 20,
2008, a declaration as to whether the transaction value of
imported merchandise is determined on the basis of the price
paid in the first or earlier sale occurring prior to the introduction
of the merchandise into the United States.
 Importers are required to provide CBP with an "F" indicator
next to each line on the entry summary, CBP Form 7501, or its
electronic equivalent, in which the declared transaction value
is determined on the basis of the “first or earlier” sale.
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First Sale Declaration Requirement
 CBP will then report the frequency of the of the use of the “first
sale” rule to the International Trade Commission (ITC) on a
monthly basis.
 ITC must submit a report to the House Ways and Means
Committee and the Senate Finance Committee within 90 days
of receipt of CBP’s final monthly report.
 A “sense of Congress” provision advises that CBP not amend
its interpretation of “sold for exportation to the United States”
for purposes of applying the transaction value of the imported
merchandise in a series of sales before January 1, 2011.
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“Sold for Exportation to the U.S.”
 The value of merchandise imported into the United States is
determined primarily under transaction value which the U.S.
value law, set forth in 19 U.S.C. 1401a, defines as “the price
actually paid or payable for the merchandise when sold for
exportation to the United States” plus specified additions to
that amount. 19 U.S.C. 1401a(b)(1).
 The phrase “sold for exportation to the United States” is not
defined in 19 U.S.C. 1401a, nor in the implementing
regulations set forth in part 152 of title 19 of the Code of
Federal Regulations (19 CFR part 152).
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First Sale Reference Material
 www.cbp.gov
 Click the “Trade” tab located on the top of the page.
 Click the “Trade Programs” tab located under “Trade”
located on the left side of the page.
 Click the “Cargo Summary” hyperlink located in the middle
of the page.
 Click the “First Sale Declaration Requirement” hyperlink
located in the middle of the page.
 This area contains the informed compliance publication,
“What Every Member of the Trade Community Should Know
About: Bona Fide Sales & Sales for Exportation to the
United States,” which contains T.D. 96-87, as well as other
information on the first sale reporting requirements.
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