00:00Let's talk to Jeff Moon, former assistant U.S. trade representative for China.
00:04Jeff, welcome. Good to see you.
00:06Well, this is all very clever, isn't it?
00:07I mean, I wonder, could widespread use of this first sale rule undermine Mr. Trump's policy goals,
00:13like encouraging domestic production?
00:17To a certain extent, it could, because it does lower tariffs.
00:20But this is a rule that has been in effect since the 1980s.
00:24It's been around for quite a while and was adopted even before there was a WTO.
00:30So the aim is not necessarily domestic production.
00:33This was purely about administration of tariffs.
00:36What are the main challenges companies face when trying to apply the first sale rule?
00:42Well, there are legal requirements and there are practical obstacles.
00:46The legal requirements are that the transaction between the manufacturer and the middleman
00:51needs to be at arm's length.
00:54It needs to be clear at the beginning of the transaction that this is an export
00:58to the United States.
01:00The parties need to be independent of each other.
01:03And if there is any relationship, they need to show that that relationship has not affected
01:07the transaction.
01:09And as your correspondent said, you need full documentation.
01:12That includes contracts, invoices, payment documents, shipping papers.
01:17It's quite a bureaucratic exercise.
01:19It sounds like a bureaucratic exercise.
01:21It all sounds very expensive as well.
01:23I mean, is the saving that significant?
01:26Well, it really depends on your business.
01:28Because as you alluded to, you need to take this seriously.
01:31You need to probably establish a team.
01:34You need to have a process.
01:35You need to get consultants working with you.
01:38So it's only really worthwhile at scale, I think.
01:42This is not for small transactions or small importers.
01:46This is something that probably a larger importer would want to do.
01:49And if they do want it and they start using it, I mean, it does beg the question, what's
01:53the point of tariffs?
01:56Well, tariffs have been a part of our policy and revenue exercises for years.
02:03So there are tariffs that are involved here.
02:06It's just that they're a little bit lower than they would be normally.
02:09Do you see this becoming a more mainstream cost-saving strategy over the next few perhaps uncertain
02:17years?
02:19Well, President Trump has dramatically increased tariffs.
02:23This first sale rule was not really used very much before President Trump's first term.
02:29And it's been used a lot more during his time.
02:32But as I said, in terms of widespread use, there are bureaucratic obstacles.
02:37There are also logistical obstacles.
02:40You need to get your middleman to trust you enough to give you the data about all the transactions
02:46that he's been doing with his manufacturers.
02:47He may not trust you that much.
02:50And then if you're working in China, the Chinese government has not welcomed people looking into
02:55the supply chain and figuring out all of those details.
02:59And then the U.S.
03:00government also will be scrutinizing very heavily.
03:03The Justice Department is prioritizing customs fraud.
03:06So if you can't document absolutely everything that you're claiming, then you could be causing
03:12yourself more problems than you're gaining in tariff savings.
03:16Jeff, good to see you.
03:17Thanks for coming on the program.
03:18Jeff Moon, former assistant U.S.
03:20Trade representative for China.
