CIT Erred in Distinguishing Between NME, Market Economy Goods in First Sale Ruling, Meyer Says

The Court of International Trade created an “impermissible distinction” under customs valuation law between goods from non-market and market economies when it denied importer Meyer Corp. first sale valuation, the importer argued in an Aug. 9 opening brief at the U.S. Court of Appeals for the Federal Circuit. Kicking off litigation in the much-anticipated appeal proceedings, Meyer argued against the alleged impermissibility of CIT's first sale rejection and for its qualifications for the special valuation status (Meyer Corporation, U.S. v. United States, Fed. Cir. #21-1932).

In a March decision, CIT Senior Judge Thomas Aquilino said that first sale treatment may not be applicable to non-market economy exports (see 2103020040). The judge said that cookware from Meyer brought in from Thailand and China through a Chinese middleman could not benefit from first sale valuation due to the involvement of Chinese companies. Such entanglement made it difficult to determine whether the transaction was conducted at arm's length and undistorted by non-market influences -- two of the criteria required for receiving the valuation. However, the judge did stop short of ruling that all non-market economy goods are ineligible for the valuation.

To establish first sale treatment, an importer must clear the four criteria established under the 1992 Federal Circuit decision Nissho Iwai American Corp. v. United States. They state that the goods were 1) purchased via bona fide sales that 2) are clearly destined for the U.S., 3) transacted at arm's length and 4) are “absent any distortive non-market influences," to be appraised as the first sale. Meyer argues in its Federal Circuit brief that it actually did clear all four of these hurdles.

In taking issue with CIT's lengthy ruling, Meyer pointed to three main problems: it made an illicit distinction between goods from market and non-market economies, it shifted the burden of proving the absence of non-market economy factors to Meyer as opposed to CBP, and it "cross-pollinat[ed]" the Nissho Iwai standard of the "'absence of non-market influences' with the concept of 'non-market economy influences.'" In doing so, the court "injected the law of unfair trade remedies (which makes such distinctions) into the Customs valuation law (which does not)."

On the distinction between non-market economy and market economy-originating goods, Meyer said this was not an allowed bifurcation to make due to existing U.S. law. "Section 402 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1401a, neither contains nor permits of any such distinction; the Agreement on the Implementation of Article VII of the GATT, upon which the United States law is based, specifically prohibits it," the brief said.

As for shifting the burden onto importers to show an absence of non-market influences, Meyer said that burden should rest solely on CBP's back, since it is the party responsible for ascertaining the liquidation values of the imports. "The valuation law requires CBP to examine the behavior of related parties to a sale transaction, not the behavior of Governments, and it is CBP, not the importer, which makes the liquidation decision, and therefore it is CBP who must explain why it has made the liquidation decision that it has," the brief said.

CIT also ignored its obligation under the 1984 Federal Circuit decision Jarvis Clark Co. v. U.S. to "reach the correct result" by whatever means possible without limiting the verdict to the options presented by the parties, Meyer said. Since first sale treatment was spurned, the court used the second sales from the Chinese middlemen to the importer as the basis for the transaction value treatment without first checking for evidence of non-market economy effects, the brief said.