The message from Congress to U.S. Customs and Border Protection (CBP) couldn't have been more blunt: Check with us before you mess with the law.
When it passed the Food, Conservation, and Energy Act of 2008 (known as the Farm Bill) in June, Congress inserted a provision requiring CBP to get permission before it changes its interpretation of the so-called First Sale Rule. Under U.S. law, importers that buy through middlemen and meet certain criteria may pay duties on the "first sale" price—the value of the merchandise when "sold for exportation" by the manufacturer.
Earlier this year, without consulting either Congress or the trade community, CBP proposed changing the definition of "sold for exportation" in a way that would effectively revoke the First Sale Rule. Importers would instead pay duties on the last, inevitably higher, price they pay to the middlemen (see "sneak attack," NewsWorthy, May 2008).
The international trade community formed a coalition to fight the plan. Under the leadership of David E. Cohen of the international trade law firm Sandler, Travis & Rosenberg, the group took its case to Congress. Among other points, the coalition argued that CBP did not have the legal authority to revoke a law through interpretation, and that only legislation or judicial action could repeal it.
Congress agreed and attached a provision to the Farm Bill that reined in CBP's authority. Why that bill? "Congress was sufficiently incensed that they felt it necessary to speak through legislation," said Cohen in an interview. "The Farm Bill was just the vehicle that was moving at the time."
The new law says CBP may not change the First Sale Rule until 2011. Before it can do that, it will have to consult months in advance with COAC (the Commercial Operations Advisory Committee, a group of industry experts who advise CBP), and with the House Ways and Means and Senate Finance committees, which have oversight of the agency. CBP will also have to get the "explicit approval" of the secretary of the treasury before publishing a change.
The coalition had little time to savor its victory, though. According to Cohen, customs officials have interpreted language in the bill that directs the agency to collect data on how many importers use the First Sale Rule as requiring all importers—whether they use that rule or not—to declare the methodology they use for valuation on each import entry. The word on Capitol Hill is that CBP's reading of the bill does not reflect legislators' intent, and a technical correction may be forthcoming.
