Alleviating Tariff Burdens via the "First Sale" Strategy
The First Sale rule, a regulation under the U.S. Customs and Border Protection (CBP), offers a strategic advantage to importers looking to lower their tariffs and landed costs, particularly when importing goods from China.
This rule allows importers to declare the customs value of imported goods based on the price paid at the earliest legitimate sale in the supply chain, rather than the final sale price paid by the U.S. importer. This can result in a lower declared value and consequently, reduced tariffs and landed costs.
For instance, when a product is sold multiple times before reaching the U.S.—from the factory to an intermediary and then to the U.S. importer—the importer can declare the value based on the first sale price, as long as all transactions are bona fide, conducted at arm’s length by independent parties, and well documented.
Key conditions include bona fide arm’s-length transactions between unrelated parties at every sale stage, not just paper transfers. The goods must also be intended for export to the U.S. at the time of the first sale. The importer must provide a full audit trail, including contracts, invoices, payment, and shipping records.
Importers often use intermediaries and legal structures (sometimes involving subsidiaries) to create clearly distinct entities for these transactions, enabling the use of the First Sale rule.
By applying the First Sale rule, companies importing from China can mitigate tariffs that would otherwise apply to higher transaction prices later in the supply chain, thereby reducing landed costs and improving competitiveness in the U.S. market. However, strict compliance and thorough documentation are critical to pass CBP scrutiny.
It's important to note that the burden of proof lies with the importer to provide adequate documentation supporting the use of the first sale value. Accessing the program can be challenging and requires bringing the manufacturer and the intermediary into the First Sale process, diligent supply chain assessment, compliance with all CBP regulations, and intensive documentation and recordkeeping procedures.
CBP, in evaluating your utilization of the First Sale Option, may not always agree. Therefore, proactive binding rulings from CBP, consultants, attorneys, and experienced customhouse brokers can be utilised to aid in the First Sale process.
The First Sale rule is a valuable tool that helps businesses lower import values and tariffs when importing goods into the United States. The article also discusses strategies for charting a course through tariff blitz, shifting trade policies, and supply chain disruptions.
Moreover, C.H. Robinson has debuted a self-serve tariff analysis tool to help shippers manage costs and navigate market volatility. The article has been successful in numerous "First Sale" engagements that have provided savings from 10-20% of duty costs at the time of customs clearance into the United States.
In summary, the First Sale rule helps reduce import tariffs and landed costs by allowing importers to use the earliest sale price in a multi-stage supply chain as the customs value, provided the transactions meet CBP’s requirements for legitimacy, independence, and documentation.
- The First Sale rule in the U.S. Customs and Border Protection (CBP) is advantageous for industries involved in global trade, as it enables businesses to lower tariffs and landed costs by declaring the customs value based on the early sale prices in the supply chain.
- To maximize the benefits of the First Sale rule in reducing import costs, businesses must establish bona fide arm's-length transactions between unrelated parties, maintain a thorough documentation trail, and ensure compliance with all CBP regulations - strategies often executed through the use of intermediaries and legal structures.
