In a major victory for importer interests, Congress has taken action to scuttle, until at least 2011, U.S. Customs and Border Protection's ("CBP") highly controversial proposal to change its practice of determining the transaction value for a series of sales from the "first sale" to the "last sale" of such goods. (73 Fed. Reg. 4254; January 24, 2008)
In a sign of the strong opposition from importers and their allies in Congress to CBP's proposal, Congress in the recently-passed Farm Bill has said that CBP "should not implement a change to U.S. Customs and Border Protection's interpretation of the term ‘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." (See Sec. 15422 (d)(1) of H.R. 2419: The Food, Conservation, and Energy Act of 2008.)
In addition to voting for what amounts to a "cease and desist" order against CBP's current efforts to adopt the "last sale" rule, Congress has also voted to require CBP to conduct a one-year study during which it will compile statistics and report them to the International Trade Commission ("ITC") on the importations that use the "first sale" rule. The Farm Bill would require importers to declare whether the transaction value of the importation was based on the "first sale" method. CBP would be required to compile this information and submit monthly reports to the ITC which include: (1) the number of importers that declared a transaction value based on the use of the first sale rule; (2) the tariff classification of the merchandise; and (3) the transaction value of the merchandise.
After the one-year study period, the ITC would be required to report to the House Ways and Means and the Senate Finance Committees on (1) aggregate number of importers that used the "first sale" rule to determine the transaction value; (2) the tariff classification of the imports and a sector-by-sector analysis; (3) the aggregate transaction value of the imports and a sector-by-sector analysis; and (4) the aggregate transaction value of all imported merchandise that used the "first sale" rule.
The Bill does allow CBP to change from the current "first sale" rule to the "last sale" rule after January 1, 2011, provided that CBP: (1) consults with the House Ways and Means and Senate Finance Committees; (2) consults with and takes into consideration the views of the Commercial Operations Advisory Committee ("COAC"); and (3) receives explicit approval from the Secretary of the Treasury.
In addition, the Farm Bill recommends that CBP consider the findings of the ITC report to Congress prior to publishing a proposal to adopt the "last sale" rule. (See Sec. 15422 (d)(3).)
Despite Congress' passage of the Farm Bill by veto-proof majorities (318 to 106 in the House and 81 to 15 in the Senate), President Bush is still expected to veto the Bill. If President Bush does veto the Farm Bill, it is uncertain whether the "first sale" provision will survive in subsequent Farm legislation, however, for the following reasons we believe the "first sale" provision stands an excellent chance of being included. First and foremost, Congress passed the Farm Bill by veto-proof majorities in the House and Senate, therefore, it is unlikely the Bill will be substantially modified, if at all, before Congress attempts to override President Bush's veto. Second, the "first sale" provisions are unrelated to the politically sensitive aspects of the Farm Bill (e.g., price supports, subsidies and farm payments) so even if Congress does make changes in subsequent Farm legislation, it is unlikely the "first sale" provisions would be removed. Third, outside of CBP, there is at best lukewarm support within the Administration for CBP's "first sale" proposal. Finally, importer interests have mobilized considerable Congressional opposition to CBP's proposal.
There are short term and medium-to-long term positive implications for importers from Congress' action. In the short term, the Congressional vote could forestall CBP's effort to administratively adopt the "last sale" rule. This is unquestionably good news for importers who have structured their production, distribution and supply chains in reliance on the "first sale" rule. In the medium-to-long term, Congress has made clear that it expects CBP to fully consult with and consider the views of Congress and the COAC before making any changes. We believe that Congress is sending a clear message to CBP that future efforts to abandon the "first sale" rule will be carefully scrutinized. The reporting requirements, the ITC study, and the consultation provisions in the aggregate make it unlikely that the "last sale" rule will be adopted anytime soon.
For further information, please contact:
Richard Abbey, email@example.com, 202-626-5901