The Court of International Trade (CIT) has issued a decision that the ability to use first sale valuation may not be applicable to transactions involving non-market economies, including China. First Sale for Export is a duty reduction program created to reduce the dutiable value of eligible products imported into the U.S.

The Ruling

In a case involving cookware that was imported by Meyer from a Chinese affiliate, CIT Senior Judge Thomas Aquilino asserted that Meyer did not prove that the sales did not involve “any distortive nonmarket influences,” which is required by a 1992 Federal Circuit decision, involving Nissho Iwai. This decision stated that companies seeking first sale treatment must prove that the goods:

  1. Were purchased via bona fide sales
  2. Are clearly destined for the U.S.
  3. Transacted at arm’s length
  4. Absent of any “distortive non-market influences”

“As a result of its consideration of the issues presented here, this court has doubts over the extent to which, if any, the ‘first sale’ test of Nissho Iwai was intended to be applied to transactions involving non-market economy participants or inputs,” said Aquilino. “In that regard, the Court of Appeals for the Federal Circuit could provide clarification.”

Aquilino has adapted a definition of “non-market” economies that is taken from antidumping duty proceedings, adding that China is a non-market economy for antidumping duty purposes.

“The most that [Meyer’s] witnesses could testify to was that they were unaware of any such [government] assistance, and to a person they flatly denied that the [Chinese] government provided any assistance or influence whatsoev­er, arguably a dubious proposition,” Aquilino said.

What Effects This Ruling May Have

The immediate effects from this decision are not yet clear. It is difficult to tell whether CBP will deny or reject first sale valuation methods when it is involving China. Meyer has 60 days to follow an appeal, which could take another 12-18 months to complete.

For now, many importer Section 301 tariff mitigation strategies are in jeopardy. It is also unclear if the ruling will have a broad application, although it seems unlikely.

For more information, please contact Mohawk Global Trade Advisors.

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