Goods Can Be Denied First Sale When Coming From Non-Market Economies, DOJ Tells Federal Circuit

Goods coming from a non-market economy may be denied first sale valuation due to the market-distorting policies of the non-market economy, the Department of Justice said in a Nov. 19 brief filed to the U.S. Court of Appeals for the Federal Circuit. Arguing the appellate court should uphold a Court of International Trade ruling questioning the use of first sale on goods from NMEs, DOJ pushed back against plaintiff Meyer Corp.'s contention that NME policies cannot be included in "any non-market influences" -- any of which the U.S. can use to deny an importer the use of first sale. Notably, DOJ did not whole-heartedly embrace the notion that goods coming from an NME are immediately disqualified from receiving first sale valuation (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: 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." Meyer, in its opening brief to the Federal Circuit, argued that it actually did clear all four of these hurdles (see 2108180060).

Meyer said CIT's ruling made an erroneous distinction between non-market and market economy-originating goods. In particular, the importer said that "any non-market influences" -- the fourth Nissho Iwai factor -- cannot be related to the trade or economic policies of a country's government, citing the General Agreement on Tariffs and Trade. DOJ took issue, arguing that Meyer never raised its GATT arguments at CIT, precluding the possibility that the importer can use them at the Federal Circuit.

Nevertheless, DOJ dove into the argument anyway, arguing that none of the other GATT signatories interpret "when sold for exportation" to mean the first sale between a producer and a middleman. "The language used in Nissho Iwai is very broad and is in addition to the arm’s length factor, which captures price distortions arising from related parties who do not deal at arm’s length," the brief added. "Thus, 'any non-market influences that affect the legitimacy of the sale price' easily contemplates such influences seen in a non-market economy."

Instead of simply dismissing the possibility of first sale completely, CIT said that one way to find whether state non-market influences muddied the sale of a given product would be the "factors used by entities located there to obtain a duty rate other than the countrywide rate" in antidumping proceedings. Meyer said this was an improper injection of trade remedy statutes into customs valuation law.

"This is not so," DOJ said. "Rather, the trial court recognized that Nissho Iwai raised the issue of non-market influences affecting price legitimacy. ... A natural analogy to such a scenario may be found in the anti-dumping context and the methods used by entities seeking to establish that the price of their goods have not been influenced by their presence in a non-market economy country. ... Therefore, the trial court’s suggestion that the de jure and de facto factors used in the separate rate context makes sense to an importer attempting to establish the absence of non-market influence when located in a non-market economy country."

Meyer also argued that CIT's decision unlawfully shifted the burden of proving the absence of non-market factors to Meyer from CBP. DOJ countered by pointing to CBP's long-held practice of presuming that an import's transaction value is based on the price actually paid by the importer and that the burden is in fact on the importer to rebut this presumption. "Meyer appears to believe that it does not need to meet its burden to prove incorrect Customs’ presumptively correct appraisal decision," the brief said. Since Meyer failed to provide any evidence to overcome CBP's presumption of correctness rejecting first sale, CBP was right to hit Meyer's goods with a second sale valuation, DOJ argued.