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Coalition Battling Customs’ ‘First Sale Rule

A proposed rule change by the U.S. Customs & Border Protection agency could force apparel and footwear importers to pay millions of dollars in additional...

WASHINGTON — A proposed rule change by the U.S. Customs & Border Protection agency could force apparel and footwear importers to pay millions of dollars in additional duties on the products they make abroad and import back to the U.S. market.

Apparel importer groups have formed a new coalition to oppose the switch.

The rule at the center of the debate is known as the “First Sale Rule,” which allows a company to determine the value of an imported finished product on the cost of the item at the point of the first sale in the supply chain — such as factory to wholesaler. The proposal would peg the final value to the point of importation, generally meaning the actual wholesale price.

Customs calculates duties based on the value of a product and companies using the existing rule essentially pay lower duties because the value of the product is lower in the beginning of the supply chain process. Apparel importers shipped $96.5 billion worth of apparel and textiles to the U.S. for the year ended Nov. 30.

Customs said in a Federal Register notice that it needed to bring its rules into compliance with a recent decision made by an international committee that provides information and advice to World Trade Organization members about the valuation of imported goods. Customs argued that most other WTO member countries determine the value of imported products based on the final price before importation.

Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association, which is spearheading the coalition, said it could increase apparel tariffs by as much as 15 percent.

“This will mean hundreds of millions of dollars for our industry and companies will have to increase the price of their products,” said Burke. “Many of them will have to eat the cost and it will cut into their margins at a time when the cost of producing goods in Asia has gone up.”

Customs has set a 60-day public comment period before implementation. But Sandler, Travis & Rosenberg, a law firm representing importers, has filed a comment to Customs seeking an extension of 180 days for public comment.