Originally published in Reed Smith's Export, Customs and Trade Sentinel Newsletter, Winter 2008
On Jan. 24, 2008, U.S. Customs and Border Protection ("Customs") published a proposed rule in the Federal Register that could dramatically increase the amount of duties paid upon importation into the United States. 73 F.R. 4254. The amount of import duties is currently based upon three factors: (1) the tariff classification of the imported item, (2) the duty rate corresponding to the tariff classification, and (3) the value of the imported item. Specifically, the duty rate multipled by the value of the imported item results in the amount of duties to be paid.
Customs has now proposed to meddle with a long-standing rule dealing with how products are valued for importation. In most cases, the value for Customs purposes is the "transaction value"—i.e., the amount paid between a buyer and a seller in an arms-length transaction. However, when there is a series of transactions through various intermediaries and distributors, the question of valuation becomes less clear. Under current U.S. law (as interpreted in two key cases McAfee (1988) and Nissho Iwai (1992)), Customs valuation was based on the "first sale" for export to the United States. Under the proposed ruling, Customs will now essentially look to the "last sale" for valuation purposes, which means that Customs duties will be paid on markups and margins that were not subject to duties in the past.
The proposed rule change is subject to comment currently for a period of 60 days, but various industry groups have already petitioned to extend the comment period to 120 days. Therefore, there is time for interested parties to comment on the proposed ruling and possibly stop its implementation.
This article is presented for informational purposes only and is not intended to constitute legal advice.
