Tariff volatility is complicating international commerce and increasing landed costs for importers. Those who re-export products could get some relief through a duty drawback program (contact us for more info) but what options are available for products that are staying in the US? One strategy worth investigating is to leverage the First Sale Rule.
The First Sale Rule allows duties to be calculated based on the manufacturer-to-intermediary transaction, rather than the higher price paid by the US buyer to a reseller or trading company. This can result in significant savings, particularly for products that pass through multiple layers of distribution before reaching the US market. Note that qualification is not automatic and US CBP applies strict standards to determine whether an importer can claim First Sale treatment. At the heart of this analysis is whether the initial sale was legitimate, conducted at arm’s length, and clearly intended for the US.
CBP’s minimum requirements include:
- Bona Fide Sale: A legitimate transaction with transfer of ownership between the foreign manufacturer and the intermediary
- Arm’s Length: Buyer and seller must be unrelated, or able to demonstrate commercial independence
- Clearly Destined for Export: Goods must be designed, labeled, or shipped explicitly for US delivery at the time of the first sale
To defend a First Sale declaration, importers must maintain detailed documentation across multiple parties in the transaction. This includes invoices, payment records, purchase orders, contracts, product specs, bills of lading, and markings such as barcodes and country-of-origin tags. Gathering this level of detail—and ensuring it is audit-ready—requires cooperation across the entire supply chain, from manufacturers to middlemen to customs brokers.
Essential documentation includes:
- Purchase orders, sales agreements, and invoices between all parties
- Bills of lading and proof of payment (e.g., letters of credit)
- Manufacturing instructions, labeling specs, and stock-keeping documentation
- Samples of packaging, hang tags, and country-of-origin markings
These requirements are difficult to meet without proactive alignment between supply chain partners. Many importers struggle to obtain the original pricing data from foreign vendors or wholesalers who may be hesitant to share proprietary cost structures. Others face internal hurdles when trying to centralize documents that are often scattered across regions and systems. Failing to meet CBP’s evidentiary standards can lead to denial of the First Sale claim that may trigger retroactive duties, potential fines, and an audit trail. The rule is not universally applicable, especially in supply chains without intermediaries, or where little value is added between tiers. It is best suited to scenarios where multiple parties exist and where intermediary markups are substantial.
The potential for savings is real and this strategy can be a great long-term compliance activity. Our guidance is to engage a trade attorney experienced in filing first sale rule applications. Reiterating our point above: failing to meet the standards set by CBP can lead to costly fines and audits – having a trade attorney on your side is a must.
