The first sale rule is having a moment. Companies have been clamoring to find legitimate ways to cut their tariff bill utilizing this obscure, but time-tested provision in U.S. customs law. U.S. importers can now value the goods based on the price from the first sale in other, unrelated transactions. This allows them to determine customs duties with more precision. Products of higher value end consumer goods and luxury products have become especially meaningful. This new trend continues to provide companies a financial lea envious as they react to growing tariffs being imposed.
This first sale rule, created in 1988, permits importers to report the price of the first sale made abroad by foreign producers. This method allows them to know exactly what they will pay duties on and not be saddled with possibly marked-up charges from middlemen. Retailers would be able to pay duties based on a lesser cost, significantly lowering retailers’ total import costs using this approach. Recent wins by Moncler have shown the benefits of this rule to industry. Executive Director Luciano Santel pointed out that it gives them “such a huge advantage” to their cost structure.
The first sale rule gained prominence during U.S. President Donald Trump’s administration, particularly when 25% tariffs were imposed on goods imported from China in 2018. This forced numerous companies to search for new ways to offset rising expenses. Industry consultant Sid Paruthi nonetheless recalled, “When that first administration came out with their 25% tariffs… that’s when we really started getting the phone calls. But now under the new tariffs, the first sale rule has begun to resurface.
To apply the first sale rule effectively, importers must ensure that at least two sales occur: one from an overseas producer and one from an intermediary. Transact at an arm’s length market basis between willing independent third parties. Make sure you have enough documentation showing that the item was meant for use in the U.S. market. Brian Gleicher, a senior lawyer at Miller & Chevalier Chartered, emphasized the importance of accurate data: “If you’re an importer, you need to get that first sale price. You need to have the data.” He further noted that “vendors may not want to give that information,” which can complicate the application of the rule.
The first sale rule is a huge windfall to companies that sell high-value products. In such cases, the margin between ex-factory prices and retail prices is both high and opaque. In these extreme cases, industrial costs routinely fall far below retail costs. This provides firms an opportunity to cut their import duties by a huge margin. As Santel stated, “The industrial cost … is much lower than the retail price … it’s a significant benefit.”
Other companies, such as Kuros Biosciences, Traeger and Fictiv, are taking advantage of the first sale rule. This strategic move allows them to reduce tariff and duty expenses as global trade tensions escalate. Traeger and Fictiv both represented these provisions, somewhat jargonously, as “supply chain mitigants,” which effectively means they’re keeping the price low and competitive.
Rich Taylor, a corporate business development consultant based in Ningbo, pointed out that suppliers are increasingly adopting strategies to retain customers by offering tools to reduce costs. He stated, “You [suppliers] are keeping your customer. You’re showing them that you’re trying to give them every tool to reduce their cost.”
As businesses continue to navigate the complexities of international trade and evolving tariff regulations, many are beginning to explore the first sale rule with greater interest. This combination of supply chain factors and customs regulation highlights the need for businesses to stay flexible and up to date.
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