CIT Judge Questions First Sale Values from China

Mar. 3, 2021
By: David G. Forgue

On March 1, 2021 the Court of International Trade issued an opinion in Meyer Corporation v. United States, Slip op. 21-26. The decision is 120 pages involving a two-part dispute between the parties. One dispute deals with the application of the Generalized System of Preferences to cookware made in Thailand from Chinese metal blanks. This part of the case is a standard “double substantial transformation” analysis by the court. Ultimately the court found that there was not a double substantial transformation of the blanks in Thailand, and that the goods did not qualify for duty free entry under GSP.

The second dispute deals with the appropriate entered value of the cookware entering the United States. As it happens, the imported cookware was sold by the manufacturer to a related reseller. The reseller then sold the cookware to Plaintiff. Reseller and Plaintiff were also related. Using the First Sale rule, Plaintiff wanted to report to Customs the value paid by the reseller to the manufacturer, rather than the value plaid by Plaintiff to the reseller. First Sale is a complicated and detailed analysis, and there are blogs that go through it in painful detail. Suffice it to say that Plaintiff needed to show that the price paid by the reseller was not influenced by “non-market factors” inherent in the relationships among the companies. It failed to prove that. Importantly, the court noted this failure, but went further to indicate that “as a result of consideration of the issues presented here, the court has doubts over the extent to which, if any, the ‘first sale’ test . . . was intended to be applied to transactions involving non-market economy participants or inputs.”

This language potentially calls into question the hundreds of First Sale arrangements importers have for purchases from China and Vietnam. The use of First Sale can lower the entered value of merchandise by substantial amounts and save importers millions of dollars. If the notion that First Sale were not available from China or Vietnam were to be supported by the Court of Appeals for the Federal Circuit or become an operating assumption by Customs, the ramifications could be serious for importers.

While calling into question the validity of millions of dollars of savings by importers is plenty for one case to do, it should also be noted that the court in this case also indicated that Customs Informed Compliance Publications (“ICPs”) are “entitled to a degree of deference” as the “well-reasoned views of the agencies implementing a statute.” This sort of language has more normally been reserved for situations in which Customs is actually applying the statutes it interprets to facts, as in a ruling issued by Customs. ICPs do not deal with actual facts and are not able to be challenged with respect to their interpretations. It is arguably an important benefit to Customs to start giving deference to these documents under those conditions.

If you have any questions about GSP, First Sale, sales from non-market economies, or Customs deference do not hesitate to contact one of our attorneys.