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WASHINGTON � A proposed federal regulation that would undo a 20-year-old, court-approved method of valuing goods imported into this country has surprised the international trade bar and companies, galvanizing them to block what they contend is an illegal effort by a federal customs agency. U.S. Customs and Border Protection (CBP), an agency within the Department of Homeland Security, protects the nation’s borders from terrorism, human and drug smuggling, illegal migration and agricultural pests. Less high profile is its job to facilitate the flow of legitimate travel and trade. In the latter capacity, the CBP recently issued a proposed regulation that would eliminate the so-called first-sale rule. The rule applies when there are multiple parties and multiple sales before goods come into this country, such as a sale from the foreign manufacturer to a distributor in a foreign country who then resells the goods to a U.S. buyer. Under the rule, the value for customs’ purpose is based on the transaction value of the first sale, and duty would be based upon the sale price between the manufacturer and the distributor. CBP wants to change that to base values on the sale price between the distributor and the U.S. buyer � the last sale. CBP v. Federal Circuit U.S. purchasers have major savings under the first-sale rule, and repeal will lead to massive increases in import duties, fees and taxes paid by many U.S. importing companies, and ultimately to higher consumer prices, according international trade litigator David Cohen of Sandler, Travis & Rosenberg in Washington, who heads a coalition to block the change. Cohen’s firm successfully argued the court case establishing the first-sale rule, McAfee Co. v. U.S., 842 F.2d 314 (Fed. Cir. 1988), which subsequently was re-affirmed twice. “I think most of the trade bar would question whether CBP has the authority to overrule a Federal Circuit decision,” said Charles Routh of Seattle’s Garvey, Schubert & Barer. CBP contends that its proposed change would bring the United States into accord with the interpretation of the World Trade Organization’s Technical Committee on Customs Valuation, which last chose last sale over first sale. CBP also contends that it would create a straightforward rule that does not require it “to engage in formidable fact-finding or to conduct foreign inquiries,” and it would reduce the importer’s burden for compliance in declaring the value of goods. “This new approach will enable traders to predict with a reasonable degree of accuracy the customs value based on information readily available in the U.S.,” the CBP said. But “[o]ne of the biggest advantages is [CBP] would collect more money,” said Routh. The World Trade Organization’s commentaries are nonbinding, said Cohen. “This is an international body to provide helpful interpretations that can be used as persuasive comments only if U.S. courts are silent,” he said. “But in this case there are several court cases right on target approving first sale.” The textile, apparel, footwear and luggage industries would be disproportionately affected by the change because they already pay high duties, said Cohen, but they are not alone. Some also use first sale to move income legitimately as part of a global tax efficiency initiative, he said. The proposal has triggered a broad range of opposition. In public comments being submitted now to CBP until April 23, the American Apparel and Footwear Association, for example, was joined by 90 businesses and trade groups, including Best Buy Co., Target Corp., the U.S. Chamber of Commerce and the American Petroleum Institute. But the New Zealand Manufacturers and Exporters Association said the last transaction prior to importation is the “logical and reasonable” transaction of the calculation of import duty. Cohen, Routh and others said CBP had never supported the first-sale rule. Many lawyers in the trade bar worked in government, he noted, and a common refrain then was: If you don’t like a legal interpretation, seek judicial review or go to Congress and try to change the law. “The exact same medicine is for customs,” he said. “In this case, it had its day in court and change should be done through legislative action.”

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