What’s in a phrase?

‍

Companies trading with the USA may in some cases be unaware that, unlike many other markets, relevant duty(s) on goods imported into the country can be calculated on their first sale for exportation instead of their last bona fide sale. Section 402 of the U.S. Tariff Act 1930 establishes the transaction value for customs duty purposes as the price paid or payable for merchandise ‘when sold for exportation to the United States’. This phrasing having left open the question of which sale, in a supply-chain involving a number of sales, is to be counted as the one determining dutiable value.

‍

First v. Last Sale

‍

While the U.S. Customs & Border Protection (CBP) agency has tended to take the view that the transaction that should be counted for duty purposes should be the final one (last sale), just prior to importation, case law has ensured that under certain circumstances an earlier arms-length sale along a supply-chain may be used. Where applicable, this earlier transaction or first sale rule gives many U.S. importers involved in more extended supply-chains the option to calculate the duty(s) payable based on the price paid or payable in a qualifying transaction further back along the supply-chain.

‍

Application of this first sale rule or principle can result in significant savings, as earlier transactions generally exclude additional supply-chain costs and markups. This means that U.S. importers can declare a lower customs value and thereby pay less import duty(s) because it is permitted to be calculated on that earlier lower sale price rather than the higher eventual resale price charged to the U.S. importer in the last transaction in the series. Given the current tariff landscape, all other things being equal, companies should make the most of this opportunity to mitigate the impact of the rise in tariffs, where possible.

‍

Challenges & Risks

‍

Challenges to reaping the benefits first sale include the following:

• Qualification - ensuring the transaction(s) to which you would want to apply it, qualifies.

• Adjustments - potential adjustments to your business operating model to ensure qualification. For example, changes to contracts, processes, and/or the location of certain activity.

• Details - maintaining accurate records and an audit trail to evidence clear intention of export to the USA.

• Impact - of goods designated, marked for the USA market on inventory flexibility.

• Scrutiny – increased likelihood of Customs checks and/or audits, ‘testing’ the basis of the first sale.

• Time - it can take time to set-up, that is, making sure everything (supply-chain, partners, processes, documentation etc.) is aligned with CBP’s first sale requirements.

‍

Risk to First Sale? - Periodically there are attempts to persuade the U.S. Congress to review the principle of first sale and to change U.S. law. The latest Bill was introduced to the legislature in February 2026 (see Last Sale Valuation Bill HERE) and may be considered in due course. It seeks to amend the U.S. Tariff Act 1930 to modify the determination of the import transaction value for customs valuation purposes, by eliminating the option for minimizing customs duty through the ‘first sale for export’ provision. Were the Bill to become law U.S. importers would be required to declare the transaction value of the last sale as the basis for customs valuation at import. This would increase costs for importers and their downstream customers alike.

‍

A previous attempt to achieve the same goal floundered as a result of business lobbying of Congress. In 2008-10 CBP proposed that the ‘first sale for exportation’ valuation option for importations into the USA involving a number of sales, be eliminated. To be replaced by valuation based on the price paid or payable in the last transaction occurring prior to the introduction of the consignment into the USA. However, the concerns of corporate America eventually led to the neutralising of this valuation rule-making initiative, CBP eventually withdrawing its proposal in 2010.

‍

Given the USA tariff increases and volatility of 2025 it is thought that more companies are using first sale to mitigate the impact of tariffs these days, where they can. Therefore, if the latest attempt to switch customs valuation focus to last sale is successful, the knock-on effects are likely to be more significant. The prospects for this latest initiative are reportedly unclear. On the one hand its revenue raising effect may appeal to the current U.S Administration, on the other, as with the last CBP initiative, opposition from business can be expected to be significant. Also, the likelihood of its passage unscathed through the current divided Congress in a year of mid-term Congressional elections would appear to be slim. So, this would appear to be a development to monitor and be mindful of for the time being, rather than one to prepare for immediately.

‍

Take-aways

• Duty - The first sale rule can save U.S. importers money, as earlier transactions generally exclude the additional supply-chain costs and markups. This enables importers to declare a lower customs value and thereby pay less import duty(s).

• Evidence - For the use of first sale to be valid CBP requires that:

• The transaction on which any applicable duty is to be calculated, be declared prior to importation.

• A minimum of two genuine arms-length sales between independent companies be in evidence.

• The price declared must be a fair market price based on real costs.

• The clear intent that the consignment of goods in question was destined for the USA at the time the earlier transaction took place be demonstrable.

• Where consignments pass through other country(s) or are warehoused en route to the USA, that a consignment’s integrity has not been compromised and that the goods remained under proper customs supervision.

• Due Diligence –

• Hold a data folder containing the relevant records of the transaction and the due diligence checks made.

• Have a documented explanation available of how a particular transaction satisfies CBP’s first sale requirements for arriving at the dutiable value.

• Have available comprehensive documentation to support the customs value declared should it be required. To include: audit trail, compliance assurance measures taken, and transaction structure including the parties involved and their respective responsibilities etc.

‍

We can support your business by assessing whether you or your U.S. customer can benefit from the use First Sale and if so, help you ensure that your arrangements can meet CBP’s compliance requirements for qualifying transactions.