US Customs and Border Protection (CBP) has intensified its enforcement of the “first sale” valuation method, emphasizing rigorous adherence to established criteria. The “first sale” principle allows importers involved in multi-tiered transactions to declare the transaction value between the manufacturer and the middleman, potentially reducing import duties compared to declaring the value between the middleman and the US importer.
To legitimately apply the “first sale” valuation, importers must satisfy three critical conditions:
- Goods must be clearly destined for exportation to the US.
- There must be two bona fide sales between the parties.
- The first sale must be conducted at arm’s length.
CBP’s ruling, H327067, underscores the importance of these conditions. In this case, the agency determined that the middleman did not take title to or assume the risk of loss for the goods, as evidenced by the transaction’s Incoterms and documentation. Consequently, CBP concluded that a bona fide sale between the manufacturer and the middleman did not occur. As a result, the importer was required to base the customs value on the price paid to the middleman, rather than the manufacturer’s price.
This ruling highlights the necessity for importers to exercise reasonable care in appraising imported goods. It is imperative to conduct ongoing reviews of first sale transactions to ensure compliance with CBP regulations and to mitigate potential challenges.
This decision is a clear indication that CBP is closely scrutinizing first sale claims and will disallow the methodology where intermediary entities are simply facilitators—rather than true buyers assuming financial risk and ownership.
Importers currently utilizing or considering the first sale method should:
- Reassess their supply chain structures and Incoterms.
- Review documentation around title transfer, purchase orders, and risk assumptions.
- Confirm the intermediary is functioning as a bona fide buyer/seller, not merely as a pass-through entity.
Now more than ever, reasonable care in customs valuation is not optional—it’s a compliance imperative. CBP’s message is clear: only those transactions that reflect commercial substance and risk assumption at each level will pass scrutiny.
Mohawk Global Trade Advisors recommends a proactive review of all first sale arrangements and can assist with documentation audits, structuring recommendations, and policy alignment to ensure your valuation methods stand up to CBP review.
For further guidance on valuation issues and recommended compliance reviews, consult with trade compliance professionals or reach out to Mohawk Global Trade Advisors.
By Chris Scalisi, Strategic Advisor, MGTA