Understanding the First Sale Rule & Insights from CBP Ruling H301049
The First Sale rule allows importers to declare customs value based on the earliest sale in a multi-tiered supply chain, such as manufacturer → intermediary → U.S. importer. When sufficiently substantiated, this method can significantly reduce duty liability, but it requires strict compliance with U.S. Customs and Border Protection (CBP) standards.
Requirements for a Valid First Sale
To use the first sale price, importers must show:
Bona Fide Sale: A real transfer of ownership, including title and risk of loss.
Arm’s-Length Pricing: Free from non-market influence; related-party transactions must satisfy CBP’s circumstances-of-sale test or test values comparison.
Clear U.S. Destination: Goods must be intended for the U.S. at the time of the first sale.
Complete Documentation: Under T.D. 96-87, importers must provide “a complete paper trail,” including but not limited to purchase orders, invoices, proofs of payment, contracts, Incoterms, and evidence of statutory additions if applicable.
Case Study: CBP Ruling H301049 (Mar. 28, 2019)
CBP reviewed a multi-tier pharmaceutical supply chain involving a foreign manufacturer, a foreign intermediary, a logistics entity, and a U.S. importer. In this case, the foreign intermediary, the logistics entity, and the U.S. importer were all related, while the foreign manufacturer was not related to any party involved in the transaction.
Some key factors that led CBP to approve the use of the first sale included:
The manufacturer was unrelated, ensuring arm’s-length pricing.
The product was approved only for sale in the United States, proving clear export intent.
Title and risk transferred under EXW/FCA Incoterms, and the intermediary held title for 12–48 hours.
A complete transactional paper trail demonstrated bona fide sales throughout the chain.
This ruling underscores that the first sale method remains viable, even with related companies, when structured correctly and supported by consistent and sufficient documentation.
If you would like an evaluation of your supply chain or assistance preparing a first sale ruling request, contact YLK Trade Law for guidance.
