First Sale Valuation

First Sale Valuation (also known as First Sale for Export) was established decades ago through judicial interpretations of the customs valuation statute.    

In earlier decades, the technique is particularly well-suited to the highly dutiable commodities on the HTSUS (such as apparel, footwear, bags/cases, and certain industrial products, and foods). Today, due to the proliferation of tariffs (under ADCVD, and section 201, 232, and 301 tariffs) the first-sale techniques are being used widely by importers trying to stay competitive in their markets.  See, first-sale presentation.   

Understanding the Basics of First Sale

The defining characteristic of a first sale duty savings program is the creation of a chain of multiple arms-length sales for the export of merchandise into the United States.  The importer is allowed to elect a value declaration to U.S. Customs using the lowest of potentially many bona fide sales, and this chosen value may then serve as the basis of duty appraisal - provided that each of the sales have been properly documented and established as bona fide to that end.   A lower declared "transaction value" may obviously translate into lower tariffs and fees (where assessed on the basis of value - i.e., ad valorem costs).   Given the effort involved in setting up a documented and compliant first sale program, the best candidates are those companies where:

1. commodities which face high tariff rates, and/or are imported in volumes sufficient to generate significant annual duty liabilities; and

2. where stable cooperative sourcing relationships exist with overseas suppliers.

The technique can provide importers with substantial duty savings.  By means of example, assume a hypothetical importer of dutiable goods (perhaps apparel, footwear, bags, or food).  The importer's largest foreign supplier ships a total of $5 million in goods which are subjected to a 15% duty rate.  This results in an annual liability of $750,000 in customs duties.   The importer implements a first sale program and realizes a reduction in its duty liabilities of approximately 20% - an annual duty savings of $150,000 per year.   Thus, over 5 years, the importer saves $750,000 in import duties (which would otherwise have been paid to the government).  Over a decade, the hypothetical savings would compound to over $1.5 million. 

As a result, the International Trade Commission's Summary Report on First Sale Valuation revealed that first sale is used across a wide diversity of importers of all kinds of commodities that are imported into the United States.

Risks of Improperly Structured First Sale Programs

Due to the large potential savings (and commensurate compliance risk) first sale valuation requires careful and experienced planning to ensure all legal requirements are satisfied.  An incorrectly implemented first sale program can result in massive duty exposures, that are magnified by the potential interest, civil penalties, and the legal costs of defense. Experienced, implementation and rigorous auditing procedures are therefore the critical factors in a successful first sale implementation.