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Tuesday, Aug 9, 2022
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U.S Customs Revisits Rule on Duty Fees

Importers already slammed by the plunging dollar now have a new concern: a proposal by Customs to do away with a rule that has been saving them lots of money on import duties.


The so-called “first-sale rule” that the U.S. Customs and Border Protection agency implemented 20 years ago after court rulings allows importers to base their duty payments on the first point of sale for a product in the import chain.


That means if a pair of shoes was made in Vietnam and sold to a buying agent in Hong Kong who then sells them to a U.S. company, the duty could be assessed on the original sale price. In cases where products pass through several hands with each adding a markup before arriving on U.S. shores, this rule can save U.S. importers millions of dollars.


In January, the Customs and Border Protection Agency proposed eliminating the first-sale rule and instead proposed basing duties on the point of last sale before entering the U.S. In its Federal Register listing for the change, the agency cited recent court rulings that were counter to the cases 20 years ago, as well as the need to conform with the General Agreement on Tariffs and Trade.


The move provoked an outcry from retailers, trade associations and import brokers across the country, all of whom complained that the cost to import goods would go up. They are pushing for the agency to drop the proposed rule change.


“This will result in an immediate increase in cost of duties of 8 percent to 15 percent, sometimes even higher,” said David Cohen, an attorney with the Washington, D.C., office of Sandler Travis & Rosenberg who also heads the Save First Sale Coalition. “This comes at a time when importers are being killed by the exchange rates. This also takes money out of the pockets of consumers by making imports more expensive, right when we are trying to stimulate the economy.”


Cohen said the industries hardest hit will be textile and apparel, which often have extensive supply chains in other countries.


Also, because so many imports flow through the ports of Los Angeles and Long Beach, the rule change is likely to have a disproportionate effect here in Southern California.


“The proposed change by Customs is very onerous for companies who utilize the first-sale rule,” said Robert Krieger, president of Krieger Worldwide, a Rancho Dominguez international freight forwarder and customs broker. Krieger is advising his customers to review their customs duties procedures, to make sure they are not overpaying or underpaying on duties.


The comment period on the Customs and Border Protection agency proposal to eliminate the first-sale rule ended April 24. At any time over the next several months, the agency can decide to withdraw its proposal, adopt it or modify it. Most likely the agency will choose to publish another notice in the Federal Register with its decision.

Staff reporter Howard Fine can be reached at

hfine@labusinessjournal.com

or at (323) 549-5225, ext. 227.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.
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