New legislation introduced in the Senate could change a long-standing practice in international trade. The Last Sale Valuation Act (“Act”) seeks to eliminate the use of the “first sale” rule for valuing U.S. imports. If enacted, importers currently utilizing first sale valuation would be required to use the price paid in the last sale prior to importation when declaring customs value.
What is first sale valuation?
International supply chains commonly involve multiple parties, beginning with a sale between the foreign manufacturer and a middleman (“first sale”), with a subsequent sale between the middleman and the U.S. importer (“last sale”). Currently, importers may declare the first sale price, as opposed to the last sale price, which is advantageous because it does not incorporate the middleman’s markup. To use first sale, the following criteria must be met and fully supported by all relevant commercial documents:
• The first sale is:
– a bona fide sale,
– negotiated at arm’s-length, and
– involves goods clearly destined for export to the U.S.
What changes will the Act bring?
The Act’s elimination of first sale would effectively be limited to those U.S. importers that currently use it for valuing imports procured in multi-tiered sourcing arrangements. The extent of any duty impact associated with a valuation change from first sale to last sale is dependent upon the importer’s procurement structure and the middleman’s margin, amongst any other applicable factors.
In simple terms, this means importers would no longer use the first sale price for calculating duties. Instead, they would be required to use the price from the last sale; the price they paid to the middleman.
Recommended next steps
Businesses currently relying on first sale valuation are encouraged to evaluate the role of intermediaries in their sourcing practices, pricing structures, transfer pricing alignment, and any trade agreement qualification to understand the potential impacts of transitioning to last-sale valuation.
The bill, only recently introduced, reflects ongoing policy discussions regarding customs valuation methodology and the broader revenue protection discussion. As with any proposed legislation, the outcome depends upon Congressional review and potential amendments.