sneak attack: CBP's quiet reinterpretation of duty rule could cost shippers a bundle

Importers are feeling like someone is trying to pull a fast one. Without fanfare—or, apparently, consultation with the trade community or Congress— the U.S. Bureau of Customs and Border Protection (CBP) published a notice of a proposed change in how it interprets a key regulation. If that change is adopted, it could raise import duties by 8 to 15 percent for some importers.

Under U.S. law, importers are allowed to pay duties on the "transaction value"—the price they pay for merchandise when sold for exportation. When goods are sold by the manufacturer to a middleman and then are resold to the U.S. buyer, importers that meet specified conditions may pay duties on the value of the first sale. CBP's proposal (USCBP-2007-0083), which appeared in the Jan. 24, 2008, Federal Register, would change the definition of the term "sold for exportation," which determines "first sale" eligibility. In effect, the change would require duties to be based on the last— inevitably higher—sale price. Large importers could end up paying millions of dollars annually in additional duties, said international trade attorney David Cohen of Sandler, Travis & Rosenberg, speaking at the Coalition of New England Companies for Trade (CONECT) Annual Northeast Trade and Transportation Conference in Newport, R.I.

One of the questions raised by the move is whether CBP has the legal authority to, in effect, revoke the First Sale Rule. Customs officials have said that the agency has the authority to revise its interpretation of rules. But opponents disagree in this case. U.S. Rep. Kendrick B. Meek (D-Fla.), for one, sent a letter asking his House colleagues to urge CBP Commissioner W. Ralph Basham to withdraw the proposal. Meek noted that the First Sale Rule's methodology has been in place for 20 years and that several court cases have upheld the rule. "These judicial decisions are interpretations of U.S. statutes, which may only be repealed by legislation or further judicial review …Despite proposing a rule that would change existing law, CBP did not consult with the Congress prior to its notice," he wrote.

The comment period for the proposal closed April 23, but importers can still make their views known to legislators. Cohen, who leads a coalition of trade associations that oppose the change (www.savefirstsale.com), hopes the proposal will be withdrawn. If it does move forward, a new rule could become effective as early as this fall, depending on how long the agency takes to review comments. Meanwhile, importers will have a ringside seat at what could be a heavyweight bout between CBP and Congress over legal jurisdiction.