First Sale Rule / Declaration Requirement

1. First Sale Rule / Declaration Requirement Long Island Import Export Association Thursday, November 13, 2008

2. 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. What is a First Sale?

3. First Sale Rule Requirements Factory/Seller Middleman Importer/Buyer 3 required elements for “first sale” rule: 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. Bona fide sale Arm’s length Sale between the factory/seller and the middleman caused the imported goods to be exported to the U.S. FirstSale LastSale

4. 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. 1st Requirement for a First Sale

5. 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. 2nd Requirement for a First Sale

6. 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. 3rd Requirement for a First Sale

7. 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). T.D. 96-87, General Notice, Determining Transaction Value in Multi-Tiered Transactions

8. 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. First Sale Declaration Requirement

9. 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. First Sale Declaration Requirement

10. 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). “Sold for Exportation to the U.S.”

11. 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. First Sale Reference Material