Could the First Sale Rule Challenge Trump's Trade Policy Goals?

CGTN Europe

The first sale rule, which has been around since the 1980s, allows companies to lower tariffs by meeting certain legal requirements and documentation processes. However, it is not a strategy for small transactions or importers, and its use has increased during President Trump's term. Jeff Moon, Former Assistant US Trade Representative for China spoke to CGTN Europe for more on the rule.

Transcript

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.

Category

Transcript

Be the first to comment

Recommended