The USITC recently announced that it intends to issue its report on the use of the First Sale Rule by 23 December, rather than by February 2010 as initially planned. The First Sale Rule is a customs valuation methodology used by many U.S. importers to lower the duties they pay on shipments from abroad, particularly textiles, apparel and footwear. The USITC is reviewing the use of First Sale for U.S. imports during the year ending 31 August 2009 and will provide data on the frequency, value and tariff and sector classifications of First Sale applications based on data provided by CBP. CBP provided its final data report to the USITC on 25 September and the USITC is required by statute to submit its report to Congress within 90 days from that date.

CBP tried to eliminate the First Sale Rule in 2008 but was forced to withdraw the proposed revocation in the face of enormous opposition from industry and an unusually rapid response from lawmakers. Congress advised CBP to postpone any action on the First Sale Rule until at least 1 January 2011 in order to allow more time to determine the potential impact. Congress also imposed a year-long reporting requirement on industry users of this methodology to generate the information that CBP will be required to consider as part of any future effort to revoke or otherwise modify the rule.

Hong Kong and mainland Chinese manufacturers should remain attentive to this issue, as any change to the First Sale Rule could have a major effect on how and where U.S. importers source their production. If the USITC report finds that the use of the First Sale Rule in relation to overall U.S. imports is small, CBP could be more inclined to make another attempt to revoke it and Congress may not be as sympathetic to industry opposition. If the report determines that the use of the rule is widespread, CBP could make the case that the government is losing out on a substantial amount of duty revenue, an argument that could gain traction at a time of economic uncertainty and growing budget deficits.