USA: Applicability of the First Sale Rule for Non-market Economies

On August 11, 2022, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) issued its decision on Meyer Corporation v. U.S. This case addresses the use of the first sale price for affiliated entities, specifically within a non-market economy (“NME”) and the court ultimately holds that first sale prices may apply in NME’s.

This decision rejects potential limitations of the first sale rule proposed by the Court of International Trade’s (“CIT”) original 2021 decision of the same matter. The lower court’s decision relied on the Nissho Iwai American Corp. v. U.S. holding and required Meyer to prove four elements to rely on the first sale price for transaction value. The CIT required: (1) a bona fide sale, (2) goods that are clearly destined for the U.S., (3) an arm’s length transaction between the related parties, and (4) the transaction to be absent any distortive non-market influences.

On appeal, the CAFC held that the lower court misinterpreted Nissho Iwai and improp­erly imposed requirements beyond those relevant for an arm’s length transaction. The CAFC stated that considering the effects of a NME on transaction value is baseless. In reaching this decision, the CAFC reemphasized the statutory language only requires determining an arm’s length transaction and explains the focus of the analysis is limited to the relationship between buyer and seller and not governmental interven­tion in an NME.

The U.S. is one of the few jurisdictions that still allows the use of a first sale price for customs valuation in multi-tiered transactions. While transaction value is typically the price actually paid for the merchandise when sold for exportation to the U.S., the first sale rule addresses which purchase price in a multi-tiered transaction is an acceptable basis of appraisement. This price is key to meeting the transaction value requirements and supporting duty mitigation strategies. In Nissho Iwai, the CAFC stated that the use of the first sale rule would only be applicable in a related party setting with proof of the first three elements above, with no mention or consideration of NME influence.

Pending the outcome of the CAFC’s Meyer decision, U.S. importers were left question­ing whether the continued use of the first sale rule for imports from NME’s, such as China and Vietnam, would be viable or subject to burdensome due diligence. Fortu­nately, the appellate court’s decision largely maintains the status quo and provides some certainty to existing first sale programs relying on the Nissho Iwai standard. Given this positive result, we expect a renewed interest in development and expansion of first sale programs. If you have any questions about the applicability of the first sale rule and related benefits, please reach out to any of the authors for more information.