Opposition Efforts Underway Against Revised First Sale ICP, Though Level of Concern Varies

Based on discussions with clients, "it is clear to us that these rules will present a major obstacle for most, if not all, companies in continuing their first sale programs," the firm said. The draft ICP includes a controversial list of documents the agency might request from industry to verify the use of first sale pricing (see 14071025). Grunfeld Desiderio is among a number of customs industry members that have voiced concerns over a draft version of the ICP changes recently circulated by the agency in an effort to get industry feedback (see 14071421). The draft is (here). Industry responses on the draft First Sale ICP are due to CBP by the first week of August, said the American Apparel & Footwear Association. CBP didn't comment.

The firm is in the process of developing its written position on the "legal and policy shortcomings" of the proposed changes, it said. Specifically, Grunfeld Desiderio argues that CBP, as a matter of law, can't "accomplish what it proposes through an informed compliance publication and that it would require legislation or at a minimum rulemaking to achieve their goal," said the firm. The agency also does not have the authority to rewrite the statute on recordkeeping requirements for third-party foreign entities, it said. CBP's efforts reflect an agency concern with an "unsubstantiated risk" and the proposed revisions are unlikely to produce a "significant return in duties," it said. The agency's proposed changes also threaten to create an "inflationary spiral for consumer products" when the economy is still weak, it said. "As a matter of public policy," creating such a threat in order for CBP "to satisfy its audit protocols is inappropriate," it said.

Additionally, CBP is seeking to work around the Food, Conservation, and Energy Act of 2008, which included provisions in response to the agency's attempt to end first sale, the firm said. Grunfeld Desiderio has already met with staff in the House Ways and means and Senate Finance Committees as part of a new lobbying effort, it said. The staff "have generally indicated that if, indeed, this proposal would result in significant damage to the first sale program they would be opposed to its implementation," said Grunfeld Desiderio. "Now that Customs has promulgated a writing, we will renew our efforts on the Hill and coordinate with various trade associations whom we believe will also object to this policy in an effort to assure its defeat."

CBP's draft may force importers to restructure their transactions, said Christopher Kane, a customs lawyer with Simon Gluck Kane. Before use of first sale valuation became popular, "the use of buying agents to whom buying commissions are paid was more common than in the ensuing years," he said (here). "The buying agent is an intermediary, but is NOT a seller or reseller to the U.S. importer." Notably, bona fide buying commissions are not included in transaction value as part of the price actually paid or payable, he said. For a middleman/seller is "to become a buying agent whose fee, as opposed to his profit, is to be excluded from entered value," would likely require changes in the importer’s agreement.

Some Less Troubled by CBP's Efforts

Not everyone finds CBP's plans to update the ICP outside the agency's authority. For instance, accounting firm KPMG's customs practice found CBP's draft to be less than radical. "CBP’s recent announcement comes as no surprise because the agency always had the authority to verify 'first sale' claims to its satisfaction," it said (here). "This is not news."

Still unclear is whether the agency would seek "documents concerning issues that may be supportable by more reasonable alternative means," said KPMG. If that's the case, "CBP’s proposed revisions would not be a mere clarification of existing policy, and would be counter to the assistant commissioner’s statements. That would be news. But this remains to be seen." Notably, whether CBP has the authority to demand documents of a foreign company is a separate issue from whether CBP has the authority to deny a “first sale," it said. "The former is questionable, but the latter is undeniable." Still, a cautious approach to first sale claims may be a better option than an expensive legal battle with CBP, it said.

The proposed changes may be more akin to a warning than a policy change, said Venable's international trade group (here). Unlike a statutory amendment or agency rulemaking, ICPs cannot effect substantive regulatory change," it said. The revised ICP "appears to inform compliance by reiterating and clarifying existing regulatory requirements and enforcement practices," and formalizing and publicizing the audit requirements when reviewing a first sale claim, said the group. "While stakeholders may interpret the ICP as adding new obstacles to establishing a first sale, the reissued ICP may be more accurately characterized as CBP's friendly warning shot to industry, possibly signaling a renewed enforcement interest in existing regulatory requirements," it said.