What are the requirements for using first sale for export customs valuation?

According to Treasury Decision 96-87 (January 2, 1997), the three requirements for using first sale for export valuation methodology are (1) that the first sale on which transaction value will be based is a bona fide sale, (2) that the goods to be imported are clearly destined for export to the United States at the time of the first sale, and (3) that the sale between the first seller and the middleman is at arm’s length.

The US Customs Service (predecessor to US Customs and Border Protection) issued this seminal Treasury Decision in the wake of the US Court of Appeals decision, Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992). In Nissho Iwai, the CAFC held that an earlier sale than the one accompanying importation could serve as the basis for transaction value “when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length.” After Nissho Iwai, the Customs Service received numerous ruling requests from importers asking for first sale treatment, and the agency issued TD 96-87 to establish the criteria on which any use of first sale should be based going forward.

I’ll address each criterion separately.

First Requirement: First Sale was a Bona Fide Sale

The threshold consideration for using first sale valuation methodology is that there was, in fact, a bona fide sale earlier in the transactional chain than the one by which the US importer purchased the goods. In this context, a sale means a transfer of title from one party to another for consideration. See HQ H326891 (May 29, 2024) (citing VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999)). In determining whether a bona fide sale has occurred, CBP considers whether a buyer assumed risk of loss and acquired title to the goods ultimately imported.

CBP has consistently weighed four factors when determining whether a bona fide sale is present: whether the buyer (1) provides or could provide instructions to the seller, (2) is free to sell the transferred item at any price he or she desires, (3) selects or could select its own downstream customers without consulting with the seller, and (4) could order the imported merchandise and have it delivered for its own inventory. See HQ H322425 (Aug. 15, 2025). CBP will review transactional documentation, contracts, proof of payment, and correspondence between the parties when weighing these factors. See HQ H326891.

Importantly, while CBP recognizes that a bona fide sale may still exist where there is a “flash title” transfer or instantaneous transfer of risk of loss, such transactions are subject to heightened scrutiny to determine whether the middleman is a genuine independent buyer/seller or merely an agent. See HQ H347879 (Sept. 12, 2025) (citing HQ H097616 (Nov. 21, 2011); HQ W563605 (Nov. 19, 2009)). In practice, the presence of flash title introduces significant vulnerability into a first sale program. See, e.g., HQ H322425; HQ H307028 (Feb. 2, 2021).

Second Requirement: Clearly Destined for Export to the United States at the time of the First Sale

First sale for export valuation methodology has its root in 19 U.S.C. § 1401a(b)(1), which provides that “[t]he transaction value of the imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States….” Section 1401a establishes the moment at which customs value can first be determined and gives rise to the CBP-articulated standard of “clearly destined” for export to the US. In weighing this factor, CBP will look for evidence that the goods have as their destination the US, and whether the importer has refuted the possibility of the contingency of diversion into some country other than the US. HQ 548239 (June 5, 2003).

Factors relevant to this determination include “whether the merchandise is shipped under a through bill of lading to the United States; whether the merchandise is custom-made for a U.S. customer; and whether the quantity and characteristics of the purchase order are consistent with the merchandise shipped by the exporter.” HQ 548239 (June 5, 2003).

CBP has denied first sale treatment where transactional documentation failed to foreclose the possibility that goods could have been diverted to a market other than the United States. See HQ 547859 (Nov. 26, 2001) (denying use of first sale where the manufacturer’s sales contract and invoices made no reference to the US importer or to the US as the destination of the goods). CBP will also consider a mismatch between the importer’s product specifications and the characteristics of the shipped product an indication that the goods are not clearly destined for the US. Id. Finally, merchandise shipped from the country of production to a foreign party or location is presumed to not be clearly destined for the US, and the importer bears the burden of presenting sufficient evidence to rebut that presumption. See HQ 547197 (Aug. 22, 2000).

Third Requirement: The First Sale was at Arm’s Length

In announcing the arm’s length requirement for first sale, the court in Nissho Iwai added language serving to further define the phrase: the parties should “deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sales price.” 

982 F.2d 505, 509.  With the understanding that an arm’s length analysis weighs the lack of non-market influences, it makes sense that the analysis operates differently depending on whether the parties to the first sale are related or unrelated. Where the parties to the first sale are unrelated, that sale is presumed to be at arm’s length and CBP does not generally require additional proof on this point absent some other indication that the price was influenced by the relationship.  See HQ H349649 (May 11, 2026); HQ H300408 (Sept. 10, 2019).

Where the parties are related, as defined in 19 U.S.C. § 1401a(g), this presumption does not apply, and the importer bears the burden of demonstrating that the relationship did not influence the price actually paid or payable under the circumstances of sale test or using a test values method. 19 U.S.C. § 1401a(b)(2)(B).  The factual conditions for use of test values (i.e., sales of identical or similar products to unrelated parties, or previously approved computed or deductive value for identical or similar goods, as long as the goods were exported to the US near the time of the imported goods) rarely arise, so the test value method is typically not available.  See, e.g., HQ 547982 (May 20, 2002).

Regarding the circumstances of sale test, the following circumstances can be used to demonstrate that the relationship of the parties did not influence the price paid:

• the price was settled in a manner consistent with the normal pricing practices of the industry in question; 

• the price was settled in a manner consistent with the way the seller settles prices for sales to buyers who are not related to it; or, 

• the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind.  

• 
  

HQ H264968 (May 8, 2018).

CBP's review of the circumstances of sale is fact-intensive and document-driven, and no single piece of evidence is automatically sufficient. Rather, CBP examines the totality of the information presented, including the way in which the buyer and seller organize their commercial relations and the manner in which the price was arrived at, to determine whether the relationship influenced the price. See HQ H238027 (Feb. 19, 2015); 19 C.F.R. § 152.103(l)(1)(i); see also  HQ H264968 (finding the all costs plus a profit test met where manufacturer’s operating margin exceeded that of its related parent middleman); HQ H224598 (Dec. 30, 2014) (approving first sale for one product where manufacturer's price to related middleman was within 1% of its contemporaneous price to unrelated buyers, while denying first sale for another product where no unrelated party sales existed and manufacturer's profit margin did not exceed the parent middleman's overall profit); HQ 547382 (Feb. 14, 2002) (concluding that the price paid to the manufacturer by the middleman was derived consistent with the normal pricing practices of the industry).

Conclusion

Establishing first sale valuation requires the importer to satisfy all three requirements set out in TD 96-87: a bona fide sale, goods clearly destined

for export to the United States, and an arm’s length price.  Failure to satisfy any one requirement rules out use of first sale regardless of how well the other requirements are documented. As the rulings discussed above illustrate, CBP’s analysis is highly dependent on the facts of each situation and the support submitted by the importer. Importers considering first sale should document their support for these three requirements treating each as having its own burden of proof and not as a single combined showing.  They should further expect CBP to test each one independently upon review.