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SUMMARY
U.S. Customs and Border Patrol (CBP) recently issued a new proposal which, if implemented,
would eliminate the long-standing and legally well-settled practice of customs valuation based on the “first sale rule.”
If this proposal is implemented, it will result in significant increases in import duties, taxes and consumer prices at precisely
the time the U.S. economy needs stimulus to counter recessionary directions.
The Administration must immediately withdraw this proposal and maintain existing practice, and Congress should codify the first-sale
rule as soon as possible to give U.S. businesses the certainty they need to operate in the future.
BACKGROUND
On January 24, 2008, CBP issued a notice in the Federal Register proposing to eliminate the “first sale rule” and thereby increase
import duties, fees, and taxes by revoking a well settled interpretation of the U.S. customs value statute that Congress enacted in 1979.
The U.S. Federal Courts have repeatedly endorsed this interpretation and yet the main reason that CBP gave for its proposal was that it
would render CBP’s position more consistent with the decision of an international body.
If allowed to take effect, CBP’s unilateral proposal would not only overturn U.S. Federal Court precedent under the guise
of a non-binding international body’s decision, but it would significantly increase the amount of import duties,
fees and taxes paid by U.S. importing companies that rely on this well settled interpretation.
As a result, consumer prices will increase dramatically.
Current State of U.S. Customs Value Law
20 years of legal precedent and administrative practice has established that when an import transaction involves a series of sales,
the customs import value upon which CBP assesses import duties, fees and taxes may be based on the sale price of the
first arm’s length transaction
for goods clearly destined
for export to the United States.
This means that U.S. importing companies can lawfully minimize import duties, fees, and taxes by basing the customs import value
on the manufacturer’s sale price to an intermediary rather than the intermediary’s sale price to the U.S. importing company.
The U.S. Federal Courts have repeatedly interpreted the U.S. customs value statute as enacted by Congress to expressly permit this
method of customs valuation. Additionally, CBP itself has consistently taken the same position in countless administrative rulings
based on this Federal Court precedent.
Proposed Alteration to Long-standing Interpretation of U.S. Customs Value Law
CBP’s proposal is to base the customs import value in a series of sales on the sale price of the last sale occurring prior to the
introduction of goods into the U.S. – rather than the manufacturer’s sale price to an intermediary as permitted by U.S. Federal Courts.
CBP’s new proposal is based on a commentary of the Technical Committee on Customs Valuation, which is comprised of international members
meeting under the auspices of the World Customs Organization.
This Committee is not authorized by Congress to interpret U.S. law and its decisions are non-binding.
Potential Impact of CBP’s Proposed Alteration of U.S. Customs Value Law
CBP’s proposal amounts to a hidden tax that would increase the amount of import duties, fees, and taxes paid by U.S. importing companies
and prices paid by U.S. consumers.
If CBP’s proposal were to take effect, many U.S. companies would be forced not only to pay increased import duties, fees,
and taxes but also to restructure and possibly eliminate business units that have been built around this long-standing law.
ACTION REQUESTED
Congress and key Administration officials must encourage CBP to withdraw the proposal and maintain existing practice.
Making this change at exactly the time that the Congress is considering implementing an economic stimulus package makes little sense,
as implementation of this new practice will undermine the stimulus impact desired. Once the proposal is withdrawn, at the appropriate time,
Congress should codify the first-sale rule to give U.S. companies the certainty they need to plan for and conduct their day-to-day business
operations.
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