Proper Import Classification and the American First Sale Rule

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Proper Import Classification and the American First Sale Rule

The U.S. First Sale Rule allows an importer to declare the value of imported goods as the price originally paid to the producer of the goods. This can result in significantly lower customs duties when, as is often the case, the importer has purchased the goods from a middleman. The importer doesn’t need to declare the price it paid, but the (undoubtedly lower) price the middleman paid. For the rule to apply, the first sale must be a good faith, arm’s length transaction in goods intended for export to the U.S. Minimum documentation requirements include purchase orders, invoices, and proof of payment for both transactions, and even more paperwork may be necessary for particularly complicated deals. There are substantial penalties for unjustified usage of the First Sale Rule, so this is definitely an area where it helps to have either a good working relationship with customs officials or a reliable customs broker.

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(It’s important to note that Canada hasn’t followed the First Sale Rule for over a decade; instead, Canadian importers use the Transaction Value Method of Valuation, under which the purchaser in the sale for export must be the purchaser in Canada.)

The Harmonized Commodity Description and Coding System, or Harmonized System for short, is another fairly technical area that’s important to stay on top of to maximize savings on import duties. Used in almost all countries, the Harmonized System assigns a code number to virtually every type of goods currently produced. As might be imagined, the numbering system is complex and incredibly detailed, making very fine distinctions between different product types. Importers who inadvertently misclassify their goods can find themselves stuck with needlessly high duties, delayed shipments, and even fines. A professional customs broker will have comprehensive expertise on the Harmonized System and can be invaluable in making sure things go smoothly.

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