Upheld Decision in Meyer Case Could Mean 'New Prong' for First Sale, Trade Lawyer Says

Although attorneys were expecting further guidance from the Court of International Trade over how best to claim "first sale" valuation with the CBP, they got even more questions about how the valuation tactic will be applied, Kevin Leonard, international trade lawyer at Grunfeld Desiderio, said at a Jan. 26 webinar hosted by the U.S. Fashion Industry Association. Speaking about CIT's March decision in Meyer Corp. v. U.S., Leonard discussed what he saw as the opinion's impacts and flaws, including a failure to look at the "second sale" price in the case and the addition of a new requirement for parties looking to claim first sale.

In Meyer, CIT said that first sale may not be applicable to transactions involving non-market economies, ultimately deferring the question to the U.S. Court of Appeals for the Federal Circuit (see 2103020040). Per a 1992 Federal Circuit decision, companies seeking first sale must prove the goods were purchased via bona fide sales, clearly destined for the U.S. and conducted at arm's length absent any distortive non-market influences. Leonard said that the court, lacking Meyer Holdings' financial statements, opened inquiries into whether non-market forces altered the price of the goods, potentially adding a fourth prong to the first sale requirements.

"This is where people in the trade community have started to get a little bit worried," Leonard said. "This creates a whole new prong to first sale potentially, that would have to be addressed in the future by other companies, either who are sourcing from China or other non-market economies" (NMEs). If the case is upheld, its impact would require importers to provide their parent company's financial statements when applying the "all costs plus profit" test regardless if the parent company makes goods of the same kind, he said.

The CIT decision improperly altered this criterion, adding the absence of non-market influences as a separate requirement for claiming first sale, Leonard argued. He said this would violate the General Agreement on Tariffs and Trade Article VII, which states that valuation procedures shouldn't be used to combat dumping. Since the "absence of non-market influences" standard is under the purview of antidumping and countervailing duty law, it has no place in valuation law. If this is first sale's new reality, however, the attorney told the webinar that submitting evidence of the nonexistence of NME country distortions using factors the Commerce Department uses in NME dumping cases could be used to thwart this new standard.

Leonard also touched on an argument raised by Meyer itself at the Federal Circuit -- that the trade court improperly applied the "dual burden of proof" when it denied the importer first sale (see 2201190059). If first sale isn't on the table, then Meyer doesn't want the court to merely uphold the valuation of the imports according to their second sale. Rather, the importer would prefer a different methodology, perhaps computed value, to get a valuation closer to the first sale, Leonard said.

"One of the biggest flaws and something we see time and again by Customs is adding another aspect to the ad hoc transfer price analysis," Leonard said. "Customs clearly scrutinized the transfer pricing in the first sale, the factory sale to the middleman. ... In the second sale, they just accepted it. There was no analysis at all as to why the same group, presumably using the same transfer price methodology, would have an acceptable sale between the related middleman and the related importer. So why didn't Customs look at that, and what would be their analysis?

"Frankly, as we consider first sale, we should always be considering other bases of appraisement, so the Meyer case is a good example of that. What would happen if that second sale failed to be an acceptable related party price? Now we should look at the other basis of appraisement."

The only problem, Leonard said, is that Meyer failed to raise the issue administratively or even at CIT, potentially disallowing the claim from being heard at the appellate court. The government has pounced on this and argued that the importer is too late to raise the issue. "It would've been preferable for Meyer to raise this at the administrative level or at a minimum at the Court of International Trade," Leonard said.