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CBP Proposes Obstacles to First Sale Rule

Thursday, July 10, 2014
Sandler, Travis & Rosenberg Trade Report

U.S. Customs and Border Protection proposed this week potentially far-reaching changes that could make it more difficult for importers to substantiate claims under the cost-saving First Sale Rule. Sandler, Travis & Rosenberg, P.A., which has led industry efforts to preserve this rule for decades, believes the proposal authorizes expanded audit initiatives that are not necessary or desirable from a legal or business operational standpoint and will vigorously challenge any effort to limit or amend the legitimate use of the First Sale Rule.

A draft revised internal compliance publication circulated by CBP July 9 appears to include additional requirements to substantiate the use of first sale despite reassurances from senior agency officials the previous day that there would be no policy changes. Among the more onerous proposed provisions is that in conducting a first sale review CBP will likely request access to exhaustive financial detail (including charts of account, general ledgers and tax returns) for all parties to a first sale transaction, including the manufacturer, middleman and parent companies.

The draft ICP also includes, for the first time, a lengthy checklist of other documents that CBP may request to prove eligibility for first sale benefits. The draft offers little further guidance to CBP auditors and other officials on how, when and to what extent to use this checklist, raising concerns that they will interpret this list as mandatory and require all the specified documents for first sale claims regardless of their relevance to validating the transaction under scrutiny. As a result, the mere issuance of this list could have a chilling effect on apparel and footwear manufacturers and importers who incorporate the First Sale Rule into their business models, the vast majority of which are transacting business in a legitimate and legal way.

The First Sale Rule was established in litigation by Sandler, Travis & Rosenberg more than 25 years ago, and its legality and importance to the U.S. economy and trade community was reaffirmed by legislation first proposed by ST&R and enacted in 2008. The firm continues to provide vigorous first sale qualification, implementation and maintenance programs that help U.S. importers fully comply with all relevant laws and regulations.

ST&R will be submitting comments to CBP challenging any attempt to limit the legitimate use of the First Sale Rule.

For more information, please contact Tom Travis at (305) 894-1001, David Cohen at (202) 730-4955 or Sally Peng at 852 9535 6034.

To view the draft revised ICP, click here.

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